Washington, D.C. 20549
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, smaller reporting companies, or emerging growth companies. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If emerging growth companies, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The consolidated financial statements include the accounts of Carnival Corporation and Carnival plc and their respective subsidiaries. Together with their consolidated subsidiaries, they are referred to collectively in these consolidated financial statements and elsewhere in this joint Quarterly Report on Form 10-Q as “Carnival Corporation & plc,” “our,” “us” and “we.”
Our derivative contracts include rights of offset with our counterparties. We have elected to net certain of our derivative assets and liabilities within counterparties.
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| | | | | | | |
| Three Months Ended February 28, |
(in millions, except per share data) | 2018 | | 2017 |
Net income for basic and diluted earnings per share | $ | 391 |
| | $ | 352 |
|
Weighted-average shares outstanding | 717 |
| | 725 |
|
Dilutive effect of equity plans | 2 |
| | 3 |
|
Diluted weighted-average shares outstanding | 719 |
| | 728 |
|
Basic earnings per share | $ | 0.54 |
| | $ | 0.48 |
|
Diluted earnings per share | $ | 0.54 |
| | $ | 0.48 |
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NOTE 79 – Shareholders’ EquitySupplemental Cash Flow Information
During | | | | | | | | | | | |
(in millions) | February 29, 2020 | | November 30, 2019 |
Cash and cash equivalents (Consolidated Balance Sheets) | $ | 1,354 | | | $ | 518 | |
Restricted cash included in prepaid expenses and other and other assets | 15 | | | 13 | |
Total cash, cash equivalents and restricted cash (Consolidated Statements of Cash Flows) | $ | 1,368 | | | $ | 530 | |
We did not issue notes receivable upon sale of ships during the three months ended February 29/28, 2018,2020 and 2019.
NOTE 10 – Other Assets
We have a minority interest in CSSC Carnival Cruise Shipping Limited (“CSSC-Carnival”), a China-based cruise company which will operate its own fleet designed to serve the Chinese market. Our investment in CSSC-Carnival was $132 million as of February 29, 2020 and $48 million as of November 30, 2019. In December 2019, we repurchased 3.0sold to CSSC-Carnival a controlling interest in an entity with full ownership of 2 EA segment ships and recognized a related gain of $107 million, included in other operating expenses in our Consolidated Statements of Income (Loss). We will continue to operate both ships under bareboat charter agreements into 2021.
NOTE 11 – Subsequent Events
The spread of COVID-19 and the recent developments surrounding the global pandemic are having material negative impacts on all aspects of our business. On March 13, 2020, we announced voluntary pauses of our global fleet cruise operations across all brands. The duration of the pauses will be dependent in part on various travel restrictions and travel bans issued by countries around the world.
As of April 1, 2020, substantially all our ships have disembarked their passengers. There are approximately 6,000 passengers onboard ships still at sea that are expected to disembark their passengers by the end of April. Some of our crew is unable to return home, and we will be providing them with food and housing.
We have updated our cancellation policies, the terms of which vary widely by brand and sailing date, to permit cruisers to cancel certain upcoming cruises and elect to receive refunds in cash or future cruise credits. As an incentive to accept the future cruise credits, our brands have offerings which vary widely in terms but generally increase the value of the future cruise credits or onboard credits (credits that can be used as onboard spending money on a future sailing). The volume and pace of cash refunds could have a material adverse effect on our liquidity and capital resources.
Significant events affecting travel, including COVID-19, typically have an impact on booking patterns, with the full extent of the impact generally determined by the length of time the event influences travel decisions. We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a material negative impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of such outbreak. We have never previously experienced a complete cessation of our cruising operations, and as a consequence, our ability to be predictive regarding the impact of such a cessation on our brands and future prospects is uncertain. In addition, the magnitude, duration and speed of the global pandemic is uncertain. As a consequence, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with certainty, but we expect a net loss on both a U.S. GAAP and adjusted basis for the fiscal year ending November 30, 2020.
The effects of further decreases in estimated future operating cash flows could result in the need to recognize additional impairment charges in future periods.
In March and April 2020, Moody’s and S&P Global downgraded our long-term issuer and senior unsecured debt ratings. In addition, our long-term ratings were placed on review for further downgrade by both rating agencies. Our short-term commercial paper credit ratings were downgraded and also placed on review for further downgrade.
In March 2020, we fully drew down our $3.0 billion Existing Multicurrency Facility.
In March 2020, we early settled all outstanding cross currency swaps designated as net investment hedges and received proceeds of $180 million, of which $167 million will remain in AOCI until either the sale or substantially complete liquidation of the related subsidiary. We also early settled our foreign currency forwards that were designated as cash flow hedges and
received proceeds of $53 million which will remain in AOCI until recognized in earnings proportionately to the related depreciation expense of the underlying vessel that was hedged.
On April 1, 2020, we announced the pricing terms of offerings of $4.0 billion of the Secured Notes, $1.75 billion Convertible Notes and a public offering of $500 million of common stock in the Public Equity Offering. In connection with the Convertible Notes offering, we granted the initial purchasers of the Convertible Notes an option to purchase on or before April 18, 2020, up to an additional $262.5 million aggregate principal amount of Convertible Notes. In connection with the Public Equity Offering, we granted the underwriters an option to purchase up to 9,375,000 of additional shares of common stock, which option must be exercised on or before May 1, 2020.
The Secured Notes will pay interest semi-annually on April 1 and October 1 of each year, beginning on October 1, 2020, at a rate of 11.5% per year. The Secured Notes will mature on April 1, 2023. The Convertible Notes will pay interest semi-annually on April 1 and October 1 of each year, beginning on October 1, 2020, at a rate of 5.75% per year. The Convertible Notes will mature on April 1, 2023, unless earlier converted, redeemed or repurchased. The initial conversion rate per $1,000 principal amount of Convertible Notes is equivalent to 100 shares of common stock of the Corporation, which is equivalent to a conversion price of approximately $10 per share, subject to adjustment in certain circumstances.
The Public Equity Offering consists of 62,500,000 shares of common stock, par value $0.01 per share, of Carnival Corporation, at a price of $8 per share.
The Public Equity Offering, the Convertible Notes offering and the Secured Notes offering are expected to be completed in early April, subject to customary closing conditions. The net proceeds from the offering of Secured Notes will be deposited in to a segregated escrow account, pending the releases in accordance with certain collateral perfection thresholds. None of the closings of the Public Equity Offering and the offerings of the Secured Notes or the Convertible Notes is conditioned upon the closing of any of the other offerings or vice versa.
One of our directors purchased 1.25 million shares of Carnival plc ordinary shares and 0.2 million shares of Carnival Corporationour common stock as part of the Public Equity Offering for $204 million and $12 million, respectively, under our general authorization to repurchase Carnival Corporation common stock and/or Carnival plc ordinary shares (the “Repurchase Program”). At February 28, 2018, the remaining availability under the Repurchase Program was $370a purchase price of approximately $10 million.
During the three months ended February 28, 2018, our Boards
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Note Concerning Factors That May Affect Future Results
Some of the statements, estimates or projections contained in this document are “forward-looking statements” that involve risks, uncertainties and assumptions with respect to us, including some statements concerning future results, operations, outlooks, plans, goals, reputation, cash flows, liquidity and other events which have not yet occurred. These statements are intended to qualify for the safe harbors from liability provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts are statements that could be deemed forward-looking. These statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and the beliefs and assumptions of our management. We have tried, whenever possible, to identify these statements by using words like “will,” “may,” “could,” “should,” “would,” “believe,” “depends,” “expect,” “goal,” “anticipate,” “forecast,” “project,” “future,” “intend,” “plan,” “estimate,” “target,” “indicate,” “outlook”“outlook,” and similar expressions of future intent or the negative of such terms.
Forward-looking statements include those statements that relate to our outlook and financial position including, but not limited to, statements regarding:
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| | | | |
•Net revenue yields | •Estimates of ship depreciable lives and residual values |
•Booking levels | •Goodwill, ship and trademark fair values |
•Pricing and occupancy | •Liquidity |
•Interest, tax and fuel expenses | •Adjusted earnings per share |
•Currency exchange rates | •Impact of the COVID-19 coronavirus global pandemic on our financial condition and results of operations |
•Net cruise costs, excluding fuel per available lower berth day |
• Booking levels
| • Estimates of ship depreciable lives and residual values
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• Pricing and occupancy
| • Goodwill, ship and trademark fair values
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• Interest, tax and fuel expenses
| • Liquidity
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• Currency exchange rates
| • Adjusted earnings per share
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Because forward-looking statements involve risks and uncertainties, there are many factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied by our forward-looking statements. This note contains important cautionary statements of the known factors that we consider could materially affect the accuracy of our forward-lookingforward looking statements and adversely affect our business, results of operations and financial position. Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 outbreak. It is not possible to predict or identify all such risks. There may be additional risks that we consider immaterial or which are unknown. These factors include, but are not limited to, the following:
•COVID-19 has had, and is expected to continue to have, a significant impact on our financial condition and operations, which impacts our ability to obtain acceptable financing to fund resulting reductions in cash from operations. The current, and uncertain future, impact of the COVID-19 outbreak, including its effect on the ability or desire of people to travel (including on cruises), is expected to continue to impact our results, operations, outlooks, plans, goals, growth, reputation, cash flows, liquidity, and stock price
The demand for cruises•As a result of the COVID-19 outbreak, we have paused our global fleet cruise operations, and if we are unable to re-commence normal operations in the near-term, we may decline due to adverse worldbe out of compliance with a maintenance covenant in certain of our debt facilities
•World events impacting the ability or desire of people to travel including conditionsaffecting the safety and security of travel, government regulations and requirements, andmay lead to a decline in consumer confidence
demand for cruises•Incidents suchconcerning our ships, guests or the cruise vacation industry as ship incidents, security incidents, the spread of contagious diseases and threats thereof,well as adverse weather conditions orand other natural disasters andmay impact the related adverse publicity affecting our reputation and the health, safety, security and satisfaction of our guests and crew and lead to reputational damage
•Changes in and compliancenon-compliance with laws and regulations under which we operate, such as those relating to health, environment, health, safety and security, data privacy and protection, taxanti-corruption, economic sanctions, trade protection and anti-corruption under which we operatetax may lead to litigations,litigation, enforcement actions, fines, or penalties, and reputational damage
Disruptions•Breaches in data security and lapses in data privacy as well as disruptions and other damages to our principal offices, information technology operations and othersystem networks and operations, breaches in data security, lapses in data privacy, and failure to keep pace with developments in technology may adversely impact our business operations, the satisfaction of our guests and crew and lead to reputational damage
•Ability to recruit, develop and retain qualified shipboard personnel who live on ships away from home for extended periods of time may adversely impact our business operations, guest services and satisfaction
•Increases in fuel prices, changes in the types of fuel consumed and availability of fuel supply may adversely impact our scheduled itineraries and costs
•Fluctuations in foreign currency exchange rates may adversely impact our financial results
•Overcapacity and competition in the cruise ship and land-based vacation industry
Continuing financial viability of our travel agent distribution system, air service providers and other key vendors may lead to a decline in our supply chain, as well as reductions in the availability of,cruise sales, pricing and increases in the prices for, the services and products provided by these vendorsdestination options
Inability to implement our shipbuilding programs and ship repairs, maintenance and refurbishments on terms that are favorable or consistent with our expectations, as well as increases to our repairs and maintenance expenses and refurbishment costs as our fleet ages
•Geographic regions in which we try to expand our business may be slow to develop andor ultimately not develop how we expect
•Inability to implement our shipbuilding programs and ship repairs, maintenance and refurbishments may adversely impact our business operations and the satisfaction of our guests
The ordering of the risk factors set forth above is not intended to reflect our indication of priority or likelihood.
Forward-looking statements should not be relied upon as a prediction of actual results. Subject to any continuing obligations under applicable law or any relevant stock exchange rules, we expressly disclaim any obligation to disseminate, after the date of this document, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.
Recent Developments
COVID-19
The spread of novel coronavirus (COVID-19) and the recent developments surrounding the global pandemic are having material negative impacts on all aspects of our business. In particular:
•Numerous passengers and crew on Diamond Princess were diagnosed with COVID-19 and the ship was quarantined at a port in Japan. As of the time of disembarkation, a substantial portion of the passengers and crew were diagnosed with COVID-19 and subsequently several passengers died due to the disease.Additionally, numerous passengers and crew on Grand Princess were diagnosed with COVID-19, some of whom subsequently died due to the disease.
•Numerous passengers and crew on other ships, including Zaandam, Costa Luminosa, Ruby Princess, Costa Magica and Costa Favolosa, have been diagnosed with COVID-19. Numerous passengers and crew on Zandaam are currently experiencing flu-like symptoms, and some have died. Costa Magica and Costa Favolosa are currently working with the U.S. Coast Guard to facilitate medical evacuations, and both vessels are anchored near the port of Miami.
•On March 13, 2020, we announced voluntary pauses of our global fleet cruise operations by our continental European and North American brands. Subsequently, we implemented a voluntary pause of our global fleet cruise operations across all brands. Each brand has separately announced the duration of its pause, but we expect such pauses to be extended (and some extensions have already been announced) and any such extensions may be prolonged. The pauses will be dependent in part on various travel restrictions and travel bans issued by various countries around the world.
•As of April 1, 2020:
◦Substantially all our ships have disembarked their passengers. There are approximately 6,000 passengers onboard ships still at sea that are expected to disembark their passengers by the end of April. Some of our crew is unable to return home, and we will be providing them with food and housing.
◦We have updated our cancellation policies, the terms of which vary widely by brand and sailing date, to permit cruisers to cancel certain upcoming cruises and elect to receive refunds in cash or future cruise credits. As an incentive to accept the future cruise credits, our brands have offerings which vary widely in terms but generally increase the value of the future cruise credits or onboard credits (credits that can be used as onboard spending money on a future sailing).The volume and pace of cash refunds could have a material adverse effect on our liquidity and capital resources.
Significant events affecting travel, including COVID-19, typically have an impact on booking patterns, with the full extent of the impact generally determined by the length of time the event influences travel decisions. We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a material negative impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of such outbreak. In particular:
•For the seven week period beginning January 26, 2020 and ending March 15, 2020, booking volumes for the remainder of 2020 were significantly behind the prior year on a comparable basis as a result of the effects of COVID-19. As of March 15, 2020, cumulative advanced bookings for the remainder of 2020 were meaningfully lower
than the prior year and at prices that are considerably lower than the prior year on a comparable basis. As noted above, all of our global fleet operations are subject to voluntary pauses that we expect to be extended. Due to the unknown length of the pauses, booking volume data for 2020 may not be informative. In addition, because of our updated cancellation policies, booking volumes may not be representative of actual cruise revenues.
•For the first half of 2021, booking volumes since mid-December 2019 through March 1, 2020, were running slightly higher than the prior year. In contrast, for the first half of 2021 and during the two weeks ended March 15, 2020, we booked 546,000 Occupied Lower Berth Days, which was considerably behind the prior year pace. As of March 15, 2020, cumulative advanced bookings for the first half of 2021 were slightly lower than the prior year.
As of February 29, 2020, we had a total of 16 cruise ships scheduled to be delivered through 2025, including four during the remainder of fiscal 2020. We believe the effects of COVID-19 on the shipyards where our ships are under construction will result in delays in ship deliveries, which we cannot predict and may be prolonged.
In March and April 2020, Moody’s and S&P Global downgraded our long-term issuer and senior unsecured debt ratings. In addition, our long-term ratings were placed on review for further downgrade by both rating agencies. Our short-term commercial paper credit ratings were downgraded and also placed on review for further downgrade.
On March 13, 2020, we fully drew down our $3.0 billion Existing Multicurrency Facility. On March 24, 2020, we settled derivatives in a net gain position of approximately $200 million. Consequently, as of the date hereof, our principal source of immediate liquidity includes our available cash and cash equivalents.Given the impact of COVID-19 on bookings, which are meaningfully reduced from the prior year comparative pace, and the pause of our global fleet cruise operations, which we expect to be extended, we are pursuing additional financing, including, but not limited to, the April 1 financing transactions
described in the next paragraph.
On April 1, 2020, we announced the pricing of the private offerings of $4.0 billion first-priority senior secured notes due 2023 (“Secured Notes”) and $1.75 billion senior convertible notes due 2023 ($2.0125 billion if the initial purchasers exercise their option to purchase additional notes) (“Convertible Notes”), and a public offering of $500 million of common stock ($575 million if the underwriters exercise their option to purchase additional shares in full) of Carnival Corporation (“Public Equity Offering”), collectively referred to within this document as the “April 1 financing transactions”. The closings of these offerings are subject to customary conditions and are expected to occur in early April. The net proceeds from the offering of Secured Notes will be deposited in to a segregated escrow account, pending the releases in accordance with certain collateral perfection thresholds.
In addition, we had $2.8 billion from four committed export credit facilities that are available to fund the originally planned ship deliveries for the remainder of 2020 and $5.9 billion from committed export credit facilities that are available to fund ship deliveries originally planned in 2021 and beyond.
To enhance our liquidity, as well as comply with the dividend restrictions contained in the Secured Notes, we have suspended the payment of dividends on, and the repurchase of, the common stock of Carnival Corporation and the ordinary shares of Carnival plc.
We cannot assure you that our assumptions used to estimate our liquidity requirements will be correct because we have never previously experienced a complete cessation of our cruising operations, and as a consequence, our ability to be predictive is uncertain.However, based on our assumptions and estimates with respect to the pause in our global fleet cruise operations and our financial condition, we believe that the liquidity described in the preceding paragraphs will be sufficient to fund our liquidity requirements over at least the next twelve months. We estimate our liquidity requirements, which include our ongoing ship and administrative operating costs, cash refunds of customer deposits, debt maturities and interest, expected capital improvements, and new ship growth capital not addressed by committed export credit facilities, to be approximately, on average, $1.0 billion per month. In particular:
•Ongoing ship and administrative operating costs - During the pause in our global fleet cruise operations, certain of our ships will be in warm ship layup where the ship will be manned by a full crew and certain of our ships will be in a prolonged ship layup where the ship will be manned by a limited crew.We estimate the cost per warm ship layup is approximately $2 million to $3 million per month and the cost per prolonged ship layup is approximately $1 million per month. We will decide whether each vessel in our global fleet will be in a warm ship layup or a prolonged ship layup depending on the circumstances, including the length of pause, which we expect to be extended and may be prolonged. We currently estimate the substantial majority of our fleet will be in prolonged ship layup.In addition, we expect to incur ongoing selling and administrative expenses, and incremental COVID-related costs associated with sanitizing our ships and defending lawsuits, although we anticipate substantially reducing our advertising spend during
the pause in operations. After transitioning to a prolonged pause, we anticipate estimated ongoing ship and administrative operating costs to range from $200 million to $300 million per month.
•Cash refunds of customer deposits - During the pause in our global fleet cruise operations, we expect to be required to pay cash refunds of customer deposits with respect to a portion of our cancelled cruises. The current portion of our customer deposits was $4.7 billion as of February 29, 2020. Depending on the length of the pause and level of guest acceptance of future cruise credits, we may be required to provide cash refunds for a substantial portion of the balance. For the two weeks ended March 15, 2020, and on a weighted average basis based on available lower berth days (“ALBD”), approximately 45% of the guests who have contacted us have accepted future cruise credits in lieu of cash refunds for cancelled voyages. We continue to take future bookings for 2020 and 2021, receiving customer deposits on those bookings.
•Debt maturities and interest - As of February 29, 2020, the current portion of our long-term debt was $2.2 billion. The current portion of our long-term debt as of February 29, 2020 that was maturing on or prior to November 30, 2020 was $1.5 billion. In addition, on March 13, 2020 we fully drew down our $3.0 billion Existing Multicurrency Facility, which amounts are currently due in September 2020 and which we currently expect to repay and redraw, in whole or in part.Our approximately $200 million per year interest expense for the year ended November 30, 2019 will be increased by the additional interest accrued under the $4.0 billion of Secured Notes and $1.75 billion of Convertible Notes.
In addition to pursuing additional financing, we are taking additional actions to improve our liquidity, including capital expenditure and operating expense reductions. In particular, we have identified approximately $1.0 billion of reduction opportunities from our previously disclosed estimated fiscal 2020 capital expenditures (which reduction does not take into account the impact on timing of payments in connection with new ship build as a result of the delays in ship deliveries discussed above).We have also identified various projects and initiatives within our selling and administrative expenses for reduction or elimination, which we expect will result in reduced cash outflows and cost savings. While we cannot guarantee an outcome, we also intend to pursue deferrals of existing debt maturities, including through available government programs.
We have never previously experienced a complete cessation of our cruising operations, and as a consequence, our ability to be predictive regarding the impact of such a cessation on our brands and future prospects is uncertain. In addition, the magnitude, duration and speed of the global pandemic is uncertain. As a consequence, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with certainty, but we expect a net loss on both a U.S. GAAP and adjusted basis for the fiscal year ending November 30, 2020.
Refer to “Risk Factors” - "COVID-19 has had, and is expected to continue to have, a materially adverse impact on our financial condition and operations, which impacts our ability to obtain acceptable financing to fund any resulting shortfalls in cash from operations. The current, and uncertain future, impact of the COVID-19 outbreak, including its effect on the ability or desire of people to travel (including on cruises), is expected to continue to impact our results, operations, outlooks, plans, goals, growth, reputation, cash flows, liquidity, and stock price".
New Accounting Pronouncements
Refer to our consolidated financial statements for further information on New Accounting Pronouncements.
Critical Accounting Estimates
For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that is included in the Form 10-K. A discussion of our impairment charges recognized during the first quarter of 2020 for goodwill and ship impairment is included in the accompanying consolidated financial statements.
Refer to Note 11 - “Subsequent Events” in our consolidated financial statements.
Seasonality
Our revenues from the sale of passenger ticketsticket revenues are seasonal. Historically, demand for cruises has been greatest during our third quarter, which includes the Northern Hemisphere summer months. This higher demand during the third quarter results in higher ticket prices and occupancy levels and, accordingly, the largest share of our operating income is earned during this period. The seasonality of our results also increases due to ships being taken out-of-service for maintenance, which we schedule during non-peak demand periods. In addition, substantially all of Holland America Princess Alaska Tours’ revenue and net income (loss) is generated from May through September in conjunction with the AlaskaAlaska's cruise season.
Statistical Information
| | | | | | | | | | | | | | | |
| Three Months Ended February 29/28, | | | | | | |
| 2020 | | 2019 | | | | |
Available Lower Berth Days (“ALBDs”) (in thousands) (a) (b) | 21,977 | | | 21,299 | | | | | |
Occupancy percentage (c) | 104.3 | % | | 104.8 | % | | | | |
Passengers carried (in thousands) | 3,063 | | | 2,937 | | | | | |
| | | | | | | |
Fuel consumption in metric tons (in thousands) | 831 | | | 830 | | | | | |
Fuel consumption in metric tons per thousand ALBDs | 37.8 | | | 38.9 | | | | | |
Fuel cost per metric ton consumed | $ | 477 | | | $ | 459 | | | | | |
Currencies (USD to 1) | | | | | | | |
AUD | $ | 0.68 | | | $ | 0.72 | | | | | |
CAD | $ | 0.76 | | | $ | 0.75 | | | | | |
EUR | $ | 1.10 | | | $ | 1.14 | | | | | |
GBP | $ | 1.31 | | | $ | 1.28 | | | | | |
RMB | $ | 0.14 | | | $ | 0.15 | | | | | |
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| | | | | | | |
| Three Months Ended February 28, |
| 2018 | | 2017 |
Available Lower Berth Days ("ALBDs") (in thousands) (a) (b) | 20,462 |
| | 20,024 |
|
Occupancy percentage (c) | 104.7 | % | | 104.6 | % |
Passengers carried (in thousands) | 2,860 |
| | 2,769 |
|
Fuel consumption in metric tons (in thousands) | 821 |
| | 818 |
|
Fuel consumption in metric tons per thousand ALBDs | 40.1 |
| | 40.9 |
|
Fuel cost per metric ton consumed | $ | 437 |
| | $ | 362 |
|
Currencies (USD to 1) | | | |
AUD | $ | 0.78 |
| | $ | 0.75 |
|
CAD | $ | 0.79 |
| | $ | 0.76 |
|
EUR | $ | 1.21 |
| | $ | 1.06 |
|
GBP | $ | 1.37 |
| | $ | 1.24 |
|
RMB | $ | 0.15 |
| | $ | 0.15 |
|
(a)ALBD is a standard measure of passenger capacity for the period that we use to approximate rate and capacity variances, based on consistently applied formulas that we use to perform analyses to determine the main non-capacity driven factors that cause our cruise revenues and expenses to vary. ALBDs assume that each cabin we offer for sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-producing ship operating days in the period.
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(a) | ALBD is a standard measure of passenger capacity for the period that we use to approximate rate and capacity variances, based on consistently applied formulas that we use to perform analyses to determine the main non-capacity driven factors that cause our cruise revenues and expenses to vary. ALBDs assume that each cabin we offer for sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-producing ship operating days in the period. |
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(b) | For the three months ended February 28, 2018 compared to the three months ended February 28, 2017, we had a 2.2% capacity increase in ALBDs comprised of a 1.4% capacity increase in our NAA segment and a 3.5% capacity increase in our EA segment. |
(b)For the three months ended February 29, 2020 compared to the three months ended February 28, 2019, we had a 3.2% capacity increase in ALBDs comprised of a 1.4% capacity increase in our NAA segment and a 6.3% capacity increase in our EA segment.
Our NAA segment’s capacity increase was caused by:by the impacts of:
Full quarter impact from one Princess Cruises 3,560-passenger•One Holland America Line 2,670-passenger capacity ship that entered into service in April 2017December 2018
Partially•One Princess Cruises 3,660-passenger capacity ship that entered into service in October 2019
•One Carnival Cruise Line 4,010-passenger capacity ship that entered into service in December 2019
The increase in our NAA segment’s capacity was partially offset by the full quarter impact by oneimpacts of:
•One P&O Cruises (Australia) 1,550-passenger1,680-passenger capacity ship removed from theservice in March 2019
•One P&O Cruises (Australia) 1,260-passenger capacity ship removed from service in April 20172019
•One Holland America Line 840-passenger capacity ship removed from service in July 2019
•Five ships out of service related to the ongoing COVID-19 outbreak in February 2020
Our EA segment’s capacity increase was caused by:by the impacts of:
Full quarter impact from one•One AIDA Cruises 3,290-passenger5,230-passenger capacity ship that entered into service in June 2017December 2018
•One Costa Cruises 4,200-passenger capacity ship that entered into service in March 2019
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(c) | In accordance with cruise industry practice, occupancy is calculated using a denominator of ALBDs, which assumes two passengers per cabin even though some cabins can accommodate three or more passengers. Percentages in excess of 100% indicate that on average more than two passengers occupied some cabins. |
•One Costa Cruises 5,220-passenger capacity ship that entered into service in December 2019
The increase in our EA segment’s capacity was partially offset by the impacts of:
•One P&O UK 1,880-passenger capacity ship removed from service in August 2019
•Six ships out of service related to the ongoing COVID-19 outbreak in February 2020
(c) In accordance with cruise industry practice, occupancy is calculated using a denominator of ALBDs, which assumes two passengers per cabin even though some cabins can accommodate three or more passengers. Percentages in excess of 100% indicate that on average more than two passengers occupied some cabins.
Three Months Ended February 28, 201829, 2020 (“2018”2020”) Compared to Three Months Ended February 28, 20172019 (“2017”2019”)
Revenues
Consolidated
Cruise passengerPassenger ticket revenues made up 74%68% of our 20182020 total revenues. Cruise passengerPassenger ticket revenues increased by $345$35 million, or 12%1.1%, to $3.1$3.2 billion in 20182020 from $2.8$3.2 billion in 2017.2019.
This increase was drivencaused by:
•$149102 million - foreign currency translational impact from3.2% capacity increase in ALBDs, net of $78 million as a weaker U.S. dollar against the functional currenciesresult of our foreign operations (“foreign currency translational impact”)cancelled voyages and other voyage disruptions directly related to COVID-19
•$7632 million - increase in cruise ticketother revenues driven primarily by price improvements in our Caribbean, Australian, European and various other programs including World Cruises
•$61 million - 2.2% capacity increase in ALBDs
$3615 million - increase in air transportation revenues
These increases were partially offset by:
•$1891 million - increasedecrease in other passenger revenuecruise ticket revenues, primarily driven by sourcing in Continental Europe and net unfavorable foreign currency transactional impact
•$24 million - net unfavorable foreign currency translational impact
The remaining 26% of 2018 total revenues were substantially all comprised of onboard
Onboard and other cruise revenues whichmade up 32% of our 2020 total revenues. Onboard and other revenues increased by $93$82 million, or 9.5%5.5%, to $1.1$1.6 billion in 20182020 from $1.0$1.5 billion in 2017.2019.
This increase was drivencaused by:
•$3346 million - foreign currency translational impact3.2% capacity increase in ALBDs, net of $41 million as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
•$3129 million - higher onboard spending by our guests
•$2126 million - 2.2% capacity increase in ALBDssales of Advanced Air Quality Systems to third parties
Concession revenues, which are included in onboard and other revenues, increased by $21$2 million, or 9.1%0.7%, to $247$257 million in 20182020 from $227$255 million in 2017.2019.
NAA Segment
Cruise passengerPassenger ticket revenues made up 71%65% of our NAA segment’s 20182020 total revenues. Cruise passengerPassenger ticket revenues increased by $117$39 million, or 6.5%1.9%, to $1.9$2.1 billion in 2018 compared to $1.82020 from $2.0 billion in 2017.2019.
This increase was drivencaused by:
•$74 million - increase in cruise ticket revenues, driven primarily by price improvements in the Caribbean and Australian programs
$2629 million - 1.4% capacity increase in ALBDs, net of $34 million as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
•$24 million - increase in other revenues
These increases were partially offset by $14 million decrease in cruise ticket revenues, primarily driven by net unfavorable foreign currency transactional impact
The remaining 29%35% of our NAA segment’s 20182020 total revenues were comprised of onboard and other cruise revenues, which increased by $50$25 million, or 6.9%2.3%, to $767 million$1.1 billion in 2018 from $718 million2020 compared to $1.1 billion in 2017.2019.
This increase was drivencaused by:
•$3315 million - 1.4% capacity increase in ALBDs, net of $19 million as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
•$13 million - higher onboard spending by our guests
$10 million - 1.4% capacity increase in ALBDs
Concession revenues, which are included in onboard and other revenues, increased by $10$1 million, or 6.0%0.8%, to $172$183 million in 20182020 from $162$182 million in 2017.2019.
EA Segment
Cruise passengerPassenger ticket revenues made up 82%78% of our EA segment’s 20182020 total revenues. Cruise passengerPassenger ticket revenues increased by $232$16 million, or 23%1.3%, to $1.2 billion in 20182020 compared to $1.0$1.2 billion in 2017.2019.
This increase was drivencaused by:
•$14575 million - foreign currency translational impact
$35 million - 3.5%6.3% capacity increase in ALBDs, net of $41 million, as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
•$259 million - increase in air transportation revenues
These increases were partially offset by:
•$1736 million - increasedecrease in cruise ticket revenues, primarily driven by sourcing in Continental Europe
•$22 million - net unfavorable foreign currency translational impact
•$17 million - decrease in occupancy primarily by price improvements inrelated to the European and various other programs including World Cruiseseffects of COVID-19
The remaining 18%22% of our EA segment’s 20182020 total revenues were comprised of onboard and other cruise revenues, which increased by $45$10 million, or 21%3%, and were $265to $339 million in 2018 and $2202020 from $329 million in 2017.2019. This increase was drivencaused by the foreign currency translational impact, which accounted for $31 million.$21 million, or 6.3% capacity increase in ALBDs, net of $15 million as a result of cancelled voyages and other voyage disruptions directly related to COVID-19.
Concession revenues, which are included in onboard and other revenues, increased by $11 million, or 17%, to $76was $73 million in 2018 from $65 million in 2017.2020 and 2019.
Costs and Expenses
Consolidated
Operating costs and expenses increased by $275 million, or 11%, to $2.7 billion in 2018 from $2.4 billion in 2017.
This increase was driven by:
$108 million - foreign currency translational impact
$61 million - higher fuel prices
$53 million - 2.2% capacity increase in ALBDs
$39 million - higher commissions, transportation and other
Selling and administrative expenses increased by $67$381 million, or 12%, to $616 million$3.5 billion in 20182020 from $549 million$3.1 billion in 2017.2019.
This increase was driven by:
$25 million - higher administrative expenses
$22 million - foreign currency translational impact
$12 million - 2.2% capacity increase in ALBDs
Depreciation and amortization expenses increased by $49 million, or 11%, to $488 million in 2018 from $439 million in 2017.
This increase was caused by:
•$21330 million - fleet enhancements and investments in shoreside assetsimpairment of ships, resulting from the effects of COVID-19 on our expected future operating cash flows
•$1999 million - foreign currency translational impact
$10 million - 2.2%3.2% capacity increase in ALBDs
NAA Segment
Operating costs and expenses increased by $101 million, or 6.5%, to $1.7 billion in 2018 from $1.6 billion in 2017.
This increase was caused by:
•$4246 million - higher fuel prices
$22 million - 1.4% capacity increase in ALBDs
$15 million - higher commissions, transportation and other expenses which includes expenses incurred as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
•$1345 million - changes in fuel mix
•$35 million - voyage related operating costs incurred in connection with disrupted voyages directly related to COVID-19
•$26 million - higher cruise payroll and related expenses
$12 million - higher port expenses
Selling and administrative expenses increased by $34 million, or 10%, to $367 million in 2018 from $333 million in 2017.
This increase was driven by:
$15 million - higher advertising and promotion expenses
$14 million - higher administrative expenses
Depreciation and amortization expenses increased by $10 million, or 3.5%, to $299 million in 2018 from $289 million in 2017.
EA Segment
Operating costs and expenses increased by $146 million, or 17%, to $1.0 billion in 2018 from $0.9 billion in 2017.
This increase was caused by:
$104 million - foreign currency translational impact
$30 million - 3.5% capacity increase in ALBDs
$25 million - higher commissions, transportation and other
$20 million - higher fuel prices
These increases were partially offset by:
•$12132 million - gains on ship sales in 2020, net of gains on ship sales in 2019
•$30 million - lower fuel prices
•$29 million - net favorable foreign currency translational impact
•$16 million - lower dry-dock expenses and repair and maintenance expenses
•$1011 million - lower cruise payroll and related expensesfuel consumption per ALBD
Selling and administrative expenses increased by $29$49 million, or 18%7.9%, to $188$678 million in 20182020 from $159$629 million in 2017. This increase was driven by foreign currency translational impact, which accounted for $22 million.2019.
Depreciation and amortization expenses increased by $27$54 million, or 20%10%, to $157$570 million in 20182020 from $130$516 million in 2017. 2019. This increase was caused by an increase in the net book value of ships in service.
Goodwill impairment charges of $731 million recognized during the first quarter of 2020, resulting from the effects of COVID-19 on our expected future operating cash flows.
NAA Segment
Operating costs and expenses increased by $264 million, or 13%, to $2.3 billion in 2020 from $2.0 billion in 2019.
This increase was caused by:
•$172 million - impairment of ships, resulting from the effects of COVID-19 on our expected future operating cash flows
•$37 million - voyage related operating costs incurred in connection with disrupted voyages directly related to COVID-19
•$29 million - 1.4% capacity increase in ALBDs
•$22 million - increase in commissions, transportation and other expenses which includes expenses incurred as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
•$21 million - changes in fuel mix
•$11 million - higher cruise payroll and related expenses
These increases were partially offset by $18 million of lower fuel prices.
Selling and administrative expenses increased by $47 million, or 13%, to $400 million in 2020 from $353 million in 2019.
This increase was driven by:
•$18 million - increase in administrative expenses
•$14 million - increase in advertising and promotional expenses
Depreciation and amortization expenses increased by $36 million, or 11%, to $364 million in 2020 from $328 million in 2019. This increase was caused by an increase in the net book value of ships in service.
Goodwill impairment charges of $300 million recognized during the first quarter of 2020, resulting from the effects of COVID-19 on our expected future operating cash flows.
EA Segment
Operating costs and expenses increased by $241 million, or 22%, to $1.3 billion in 2020 from $1.1 billion in 2019.
This increase was caused by:
•$158 million - impairment of ships, resulting from the effects of COVID-19 on our expected future operating cash flows
•$67 million - 6.3% capacity increase in ALBDs
•$19 million - increase in commissions, transportation and other expenses which includes expenses incurred as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
•$17 million - changes in fuel mix
•$15 million - higher cruise payroll and related expenses
These increases were partially offset by net favorable foreign currency translational impact which accounted for $18of $25 million.
Selling and administrative expenses increased by $1 million, or 0.7%, to $207 million in 2020 from $205 million in 2019.
Depreciation and amortization expenses increased by $14 million, or 10%, to $166 million in 2020 from $152 million in 2019. This increase was caused by an increase in the net book value of ships in service.
Goodwill impairment charges of $431 million recognized during the first quarter of 2020, resulting from the effects of COVID-19 on our expected future operating cash flows.
Operating Income (Loss)
Our consolidated operating income increased(loss) decreased by $51 million, or 14%,$1.1 billion to $419 million$(0.7) billion in 20182020 from $368 million$0.4 billion in 2017.2019. Our NAA segment’s operating income increased(loss) decreased by $22$583 million or 6.4%, to $360 million$(0.2) billion in 2018 from $338 million2020 compared to $0.4 billion in 2017,2019, and our EA segment’s operating income increased(loss) decreased by $76$662 million or 97%, to $154$(569) million in 20182020 from $78$93 million in 2017.2019. These changes were primarily due to the reasons discussed above.
Nonoperating Income (Expense)
|
| | | | | | | |
| Three Months Ended February 28, |
(in millions) | 2018 | | 2017 |
Unrealized gains on fuel derivatives, net | $ | 32 |
| | $ | 72 |
|
Realized losses on fuel derivatives, net | (16 | ) | | (45 | ) |
Gains on fuel derivatives, net | $ | 16 |
| | $ | 27 |
|
Explanations of Non-GAAP Financial Measures
Non-GAAP Financial Measures
We use net cruise revenues per ALBD (“net revenue yields”), net cruise costs excluding fuel per ALBD, adjusted net income and adjusted earnings per share as non-GAAP financial measures of our cruise segments’ and the company’s financial performance. These non-GAAP financial measures are provided along with U.S. GAAP gross cruise revenues per ALBD (“gross revenue yields”), gross cruise costs per ALBD and U.S. GAAP net income (loss) and U.S. GAAP diluted earnings per share.
Net revenue yields and net cruise costs excluding fuel per ALBD enable us to separate the impact of predictable capacity or ALBD changes from price and other changes that affect our business. We believe these non-GAAP measures provide useful information to investors and expanded insight to measure our revenue and cost performance as a supplement to our U.S. GAAP consolidated financial statements.
Under U.S. GAAP, the realized and unrealized gains and losses on fuel derivatives not qualifying as fuel hedges are recognized currently in earnings. We believe that unrealized gains and losses on fuel derivatives are not an indication of our earnings performance since they relate to future periods and may not ultimately be realized in our future earnings. Therefore, we believe it is more meaningful for the unrealized gains and losses on fuel derivatives to be excluded from our net income and earnings per share and, accordingly, we present adjusted net income and adjusted earnings per share excluding these unrealized gains and losses.
We believe that gains and losses on ship sales, impairment charges, restructuring costs and other gains and expenses are not part of our core operating business and are not an indication of our future earnings performance. Therefore, we believe it is more meaningful for gains and losses on ship sales, impairment charges, and restructuring and other non-core gains and chargesthese items to be excluded from our net income (loss) and earnings per share and, accordingly, we present adjusted net income and adjusted earnings per share excluding these items.
The presentation of our non-GAAP financial information is not intended to be considered in isolation from, as substitute for, or superior to the financial information prepared in accordance with U.S. GAAP. It is possible that our non-GAAP financial measures may not be exactly comparable to the like-kind information presented by other companies, which is a potential risk associated with using these measures to compare us to other companies.
Net passenger ticket revenues reflect gross passenger ticket revenues, net of commissions, transportation and other costs.
Net onboard and other revenues reflect gross cruise onboard and other revenues, net of onboard and other costs.
Net revenue yields is a combination of net passenger ticket revenues and net onboard and other revenues divided by ALBDs. Net revenue yields are commonly used in the cruise industry to measure a company’s cruise segment revenue performance and for revenue management purposes. We use “net cruise revenues” rather than “gross cruise revenues” to calculate net revenue yields. We believe that net cruise revenues is a more meaningful measure in determining revenue yield than gross cruise revenues because it reflects the cruise revenues earned net of our most significant variable costs,cost, which are travel agent commissions, costcosts of air and other transportation, certain other costs that are directly associated with onboard and other revenues and credit and debit card fees.
Net passenger ticket revenues reflect gross passenger ticket revenues, net of commissions, transportation and other costs.
Net onboard and other revenues reflect gross onboard and other revenues, net of onboard and other cruise costs.
Net cruise costs excluding fuel per ALBD is the measure we use to monitor our ability to control our cruise segments’ costs rather than reflect gross cruise costs per ALBD. We excludeoperating expenses as well as cruise selling and administrative expenses, and excludes fuel expenses as well as the same variable costs that are included in the calculation of net cruisepassenger ticket revenues as well as fuel expense to calculateand net cruise costs without fuelonboard and other revenues to avoid duplicating these variable costs in our non-GAAP financial measures. Substantially all of our net cruise costs excluding fuel are largely fixed, except for the impact of changing prices, once the number of ALBDs has been determined.
Net cruise costs excluding fuel per ALBD is the measure we use to monitor our ability to control our cruise segments’ costs and is calculated as net cruise cost excluding fuel divided by ALBDs.
Reconciliation of Forecasted Data
We have not provided a reconciliation of forecasted gross cruise revenues to forecasted net cruise revenues or forecasted gross cruise costs to forecasted net cruise costs without fuel or forecasted U.S. GAAP net income (loss) to forecasted adjusted net income (loss) or forecasted U.S. GAAP diluted earnings per share to forecasted adjusted earnings per share because preparation of meaningful U.S. GAAP forecasts of gross cruise revenues, gross cruise costs, net income (loss) and earnings per share would require unreasonable effort. We are unable to predict, without unreasonable effort, the future movement of foreign exchange rates and fuel prices. While we forecast realized gains and losses on fuel derivatives by applying current Brent prices to the derivatives that settle in the forecast period, we do not forecast the impact of unrealized gains and losses on fuel derivatives because we do not believe they are an indication of our future earnings performance. We are unable to determine the future impact of gains or losses on ships sales, restructuring expenses and other non-core gains and charges.
Constant Currency
Our operations primarily utilize the U.S. dollar, Australian dollar, euro and sterling as functional currencies to measure results and financial condition. Functional currencies other than the U.S. dollar subject us to foreign currency translational risk. Our operations also have revenues and expenses that are in currencies other than their functional currency, which subject us to foreign currency transactional risk.
We report net revenue yields, net passenger revenue yields, net onboard and other revenue yields and net cruise costs excluding fuel per ALBD on a “constant dollar” and “constant currency” basis assuming the 2018 periods’ currency exchange rates have remained constant with the 2017 periods’ rates. These metrics facilitate a comparative view for the changes in our business in an environment with fluctuating exchange rates.
Constant dollarreporting removes only the impact of changes in exchange rates on the translation of our operations.
Constant currencyreporting removes the impact of changes in exchange rates on the translation of our operations (as in constant dollar) plus the transactional impact of changes in exchange rates from revenues and expenses that are denominated in a currency other than the functional currency.
Examples:
•Translational Risk:The translation of our operations with functional currencies other than U.S. dollar to our U.S. dollar reporting currency results in decreases in reported U.S. dollar revenues and expenses if the U.S. dollar strengthens against these foreign currencies and increases in reported U.S. dollar revenues and expenses if the U.S. dollar weakens against these foreign currencies.
•Transactional Risk:Our operations have revenue and expense transactions in currencies other than their functional currency. If their functional currency strengthens against these other currencies, it reduces the functional currency revenues and expenses. If the functional currency weakens against these other currencies, it increases the functional currency revenues and expenses.
Constant currency reporting removes the impact of changes in exchange rates on the translation of our operations plus the transactional impact of changes in exchange rates from revenues and expenses that are denominated in a currency other than the functional currency.
We report net revenue yields, net passenger revenue yields, net onboard and other revenue yields and net cruise costs excluding fuel per ALBD on a “constant currency” basis assuming the 2020 periods’ currency exchange rates have remained constant with the 2019 periods’ rates. This metric facilitates a comparative view for the changes in our business in an environment with fluctuating exchange rates.
Consolidated gross and net revenue yields were computed by dividing the gross and net cruise revenues by ALBDs as follows:
| | | Three Months Ended February 28, | | Three Months Ended February 29/28, | |
(dollars in millions, except yields) | 2018 | | 2018 Constant Dollar | | 2017 | (dollars in millions, except yields) | 2020 | | 2020 Constant Currency | | 2019 |
Passenger ticket revenues | $ | 3,148 |
| | $ | 2,999 |
| | $ | 2,804 |
| Passenger ticket revenues | $ | 3,234 | | | | | | $ | 3,199 | |
Onboard and other revenues | 1,071 |
| | 1,038 |
| | 978 |
| Onboard and other revenues | 1,556 | | | | | | 1,474 | |
Less: Tour and other revenues | | Less: Tour and other revenues | (52) | | | | | | (29) | |
Gross cruise revenues | 4,219 |
| | 4,037 |
| | 3,782 |
| Gross cruise revenues | 4,737 | | | | | | 4,645 | |
Less cruise costs | | | | | | Less cruise costs | | | | | | |
Commissions, transportation and other | (663 | ) | | (621 | ) | | (569 | ) | Commissions, transportation and other | (766) | | | | | | (709) | |
Onboard and other | (140 | ) | | (135 | ) | | (125 | ) | Onboard and other | (471) | | | | | | (467) | |
| (803 | ) | | (756 | ) | | (694 | ) | | (1,238) | | | | | | (1,177) | |
Net cruise revenues | | Net cruise revenues | $ | 3,499 | | | $ | 3,537 | | | $ | 3,468 | |
| Net passenger ticket revenues | 2,485 |
| | 2,378 |
| | 2,235 |
| Net passenger ticket revenues | $ | 2,467 | | | $ | 2,497 | | | $ | 2,490 | |
Net onboard and other revenues | 931 |
| | 903 |
| | 853 |
| Net onboard and other revenues | $ | 1,032 | | | $ | 1,039 | | | $ | 978 | |
Net cruise revenues | $ | 3,416 |
| | $ | 3,280 |
| | $ | 3,088 |
| |
| | | | | | | | | | |
ALBDs | 20,461,582 |
| | 20,461,582 |
| | 20,024,045 |
| ALBDs | 21,977,115 | | | 21,977,115 | | | 21,299,196 | |
| | | | | | |
Gross revenue yields | $ | 206.20 |
| | $ | 197.29 |
| | $ | 188.87 |
| Gross revenue yields | $ | 215.53 | | | | | | $ | 218.06 | |
% increase | 9.2 | % | | 4.5 | % | |
| |
% increase (decrease) | | % increase (decrease) | (1.2) | % | | | | | | |
Net revenue yields | $ | 166.95 |
| | $ | 160.32 |
| | $ | 154.22 |
| Net revenue yields | $ | 159.22 | | | $ | 160.93 | | | $ | 162.82 | |
% increase | 8.3 | % | | 4.0 | % | |
| |
% increase (decrease) | | % increase (decrease) | (2.2) | % | | (1.2) | % | | | |
Net passenger ticket revenue yields | $ | 121.46 |
| | $ | 116.21 |
| | $ | 111.60 |
| Net passenger ticket revenue yields | $ | 112.26 | | | $ | 113.64 | | | $ | 116.90 | |
% increase | 8.8 | % | | 4.1 | % | |
| |
% increase (decrease) | | % increase (decrease) | (4.0) | % | | (2.8) | % | | | |
Net onboard and other revenue yields | $ | 45.50 |
| | $ | 44.11 |
| | $ | 42.62 |
| Net onboard and other revenue yields | $ | 46.96 | | | $ | 47.30 | | | $ | 45.92 | |
% increase | 6.8 | % | | 3.5 | % | |
| |
% increase (decrease) | | % increase (decrease) | 2.3 | % | | 3.0 | % | | | |
|
| | | | | | | | | | | |
| Three Months Ended February 28, |
(dollars in millions, except yields) | 2018 | | 2018 Constant Currency | | 2017 |
Net passenger ticket revenues | $ | 2,485 |
| | $ | 2,374 |
| | $ | 2,235 |
|
Net onboard and other revenues | 931 |
| | 906 |
| | 853 |
|
Net cruise revenues | $ | 3,416 |
| | $ | 3,280 |
| | $ | 3,088 |
|
ALBDs | 20,461,582 |
| | 20,461,582 |
| | 20,024,045 |
|
| | | | | |
Net revenue yields | $ | 166.95 |
| | $ | 160.31 |
| | $ | 154.22 |
|
% increase | 8.3 | % | | 3.9 | % | |
|
Net passenger ticket revenue yields | $ | 121.46 |
| | $ | 116.04 |
| | $ | 111.60 |
|
% increase | 8.8 | % | | 4.0 | % | |
|
Net onboard and other revenue yields | $ | 45.50 |
| | $ | 44.27 |
| | $ | 42.62 |
|
% increase | 6.8 | % | | 3.9 | % | |
|
Consolidated gross and net cruise costs and net cruise costs excluding fuel per ALBD were computed by dividing the gross and net cruise costs and net cruise costs excluding fuel by ALBDs as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended February 29/28, | | | | |
(dollars in millions, except costs per ALBD) | 2020 | | 2020 Constant Currency | | 2019 |
Operating expenses | $ | 3,523 | | | | | | $ | 3,142 | |
Selling and administrative expenses | 678 | | | | | | 629 | |
Less tour and other expenses | (26) | | | | | | (34) | |
Gross cruise costs | 4,175 | | | | | | 3,736 | |
Less cruise costs | | | | | |
Commissions, transportation and other | (766) | | | | | | (709) | |
Onboard and other | (471) | | | | | | (467) | |
Gains (losses) on ship sales and impairments | (221) | | | | | | (2) | |
Restructuring expenses | — | | | | | | — | |
Other | — | | | | | | — | |
Net cruise costs | 2,716 | | | | | | 2,558 | |
Less fuel | (396) | | | | | | (381) | |
Net cruise costs excluding fuel | $ | 2,320 | | | $ | 2,340 | | | $ | 2,177 | |
| | | | | |
ALBDs | 21,977,115 | | | 21,977,115 | | | 21,299,196 | |
| | | | | |
Gross cruise costs per ALBD | $ | 189.96 | | | | | | $ | 175.40 | |
% increase (decrease) | 8.3 | % | | | | | |
Net cruise costs excluding fuel per ALBD | $ | 105.57 | | | $ | 106.46 | | | $ | 102.21 | |
% increase (decrease) | 3.3 | % | | 4.2 | % | | |
|
| | | | | | | | | | | |
| Three Months Ended February 28, |
(dollars in millions, except costs per ALBD) | 2018 | | 2018 Constant Dollar | | 2017 |
Cruise operating expenses | $ | 2,695 |
| | $ | 2,587 |
| | $ | 2,422 |
|
Cruise selling and administrative expenses | 610 |
| | 587 |
| | 546 |
|
Gross cruise costs | 3,305 |
| | 3,175 |
| | 2,968 |
|
Less cruise costs included above | | | | | |
Commissions, transportation and other | (663 | ) | | (621 | ) | | (569 | ) |
Onboard and other | (140 | ) | | (135 | ) | | (125 | ) |
(Losses) gains on ship sales and impairments | (16 | ) | | (16 | ) | | — |
|
Restructuring expenses | — |
| | — |
| | — |
|
Other | — |
| | — |
| | 1 |
|
Net cruise costs | 2,485 |
| | 2,402 |
| | 2,275 |
|
Less fuel | (359 | ) | | (359 | ) | | (297 | ) |
Net cruise costs excluding fuel | $ | 2,127 |
| | $ | 2,044 |
| | $ | 1,978 |
|
ALBDs | 20,461,582 |
| | 20,461,582 |
| | 20,024,045 |
|
| | | | | |
Gross cruise costs per ALBD | $ | 161.51 |
| | $ | 155.16 |
| | $ | 148.24 |
|
% increase | 9.0 | % | | 4.7 | % | |
|
Net cruise costs excluding fuel per ALBD | $ | 103.92 |
| | $ | 99.84 |
| | $ | 98.81 |
|
% increase | 5.2 | % | | 1.0 | % | |
|
|
| | | | | | | | | | | |
| Three Months Ended February 28, |
(dollars in millions, except costs per ALBD) | 2018 | | 2018 Constant Currency | | 2017 |
Net cruise costs excluding fuel | $ | 2,127 |
| | $ | 2,042 |
| | $ | 1,978 |
|
ALBDs | 20,461,582 |
| | 20,461,582 |
| | 20,024,045 |
|
| | | | | |
Net cruise costs excluding fuel per ALBD | $ | 103.92 |
| | $ | 99.81 |
| | $ | 98.81 |
|
% increase | 5.2 | % | | 1.0 | % | |
|
Adjusted fully diluted earnings per share was computed as follows:
| | | | | | | | | | | | |
| Three Months Ended | | | |
| February 29/28, | | | |
(in millions, except per share data) | 2020 | | 2019 | |
Net income (loss) | | | | |
U.S. GAAP net income (loss) | $ | (781) | | | $ | 336 | | |
(Gains) losses on ship sales and impairments | 928 | | | 2 | | |
Restructuring expenses | — | | | — | | |
Other | 3 | | | — | | |
Adjusted net income | $ | 150 | | | $ | 338 | | |
Weighted-average shares outstanding | 684 | | | 695 | | |
| | | | |
Earnings per share | | | | |
U.S. GAAP diluted earnings per share | $ | (1.14) | | | $ | 0.48 | | |
(Gains) losses on ship sales and impairments | 1.36 | | | — | | |
Restructuring expenses | — | | | — | | |
Other | 0.01 | | | — | | |
Adjusted earnings per share | $ | 0.22 | | | $ | 0.49 | | |
| | | | |
|
| | | | | | | |
| Three Months Ended |
| February 28, |
(in millions, except per share data) | 2018 | | 2017 |
Net income | | | |
U.S. GAAP net income | $ | 391 |
| | $ | 352 |
|
Unrealized (gains) losses on fuel derivatives, net | (32 | ) | | (72 | ) |
(Gains) losses on ship sales and impairments | 16 |
| | — |
|
Restructuring expenses | — |
| | — |
|
Other | — |
| | (1 | ) |
Adjusted net income | $ | 375 |
| | $ | 279 |
|
Weighted-average shares outstanding | 719 |
| | 728 |
|
| | | |
Earnings per share | | | |
U.S. GAAP earnings per share | $ | 0.54 |
| | $ | 0.48 |
|
Unrealized (gains) losses on fuel derivatives, net | (0.05 | ) | | (0.10 | ) |
(Gains) losses on ship sales and impairments | 0.02 |
| | — |
|
Restructuring expenses | — |
| | — |
|
Other | — |
| | — |
|
Adjusted earnings per share | $ | 0.52 |
| | $ | 0.38 |
|
| | | |
Net cruise revenues increased by $328$31 million, or 11%0.9%, to $3.4$3.5 billion in 2018 from $3.12020 compared to $3.5 billion in 2017.2019.
The increase was caused by a 3.2% capacity increase in ALBDs of $110 million, net of 2.8% of ALBDs as a result of cancelled voyages and other voyage disruptions directly related to COVD-19
This increase was partially offset by:
•$13641 million - 1.2% decrease in constant currency net revenue yields, including impacts of COVID-19 as a result of cancelled voyages and other voyage disruptions
•$38 million - net unfavorable foreign currency impacts (including both the foreign currency translational and transactional impacts)
$125 million - 3.9% increaseThe 1.2% decrease in constant currency net revenue yields
$67 million - 2.2% capacity increase in ALBDs
The 3.9% increase in net revenue yields on a constant currency basis was due to a 4.0% increase2.8% decrease in constant currency net passenger ticket revenue yields, andpartially offset by a 3.9%3.0% increase in constant currency net onboard and other revenue yields.
The 4.0% increaseThis 2.8% decrease in net passenger ticket revenue yields was driven primarily by price improvementssourcing in our Caribbean, Australian, European and various other programs including World Cruises.Continental Europe. This 4.0% increase2.8% decrease in net passenger ticket revenue yields was comprised of a 3.9%5.8% decrease from our EA segment, offset by a 0.3% increase from our NAA segment and a 4.5% increase from our EA segment.
The 3.9%3.0% increase in net onboard and other revenue yields was caused by similar increases incomprised of a 1.5% increase from our NAA segment, a 0.6% increase from our EA segment and EA segments.
Gross cruise revenues increased by $437 million, or 12%,an increase to $4.2 billion in 2018 from $3.8 billion in 2017 for largely the same reasons as discussed above.Cruise Support segment revenue.
Net cruise costs excluding fuel increased by $148$143 million, or 7.5%6.6%, to $2.1$2.3 billion in 20182020 from $2.0$2.2 billion in 2017.2019.
The increase was drivencaused by:
•$8493 million - 4.2% increase in constant currency net cruise costs excluding fuel, including incremental impacts of COVID-19 as a result of cancelled voyages and other voyage disruptions
•$69 million - 3.2% capacity increase in ALBDs, net of 2.8% of ALBDs as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
These increases were partially offset by:
•$20 million - net favorable foreign currency impacts (including both the foreign currency translational and transactional impacts)
$43 million - 2.2% capacity increase in ALBDs
$20 million - 1.0% increase in constant currency net cruise costs excluding fuel
Fuel costs increased by $62$16 million, or 21%4.2%, to $359$396 million in 20182020 from $297$381 million in 2017. 2019.
This increase was driven by highercaused by:
•$45 million - changes in fuel prices, which accounted for $61 million.mix
Gross cruise costs increased by $337•$12 million or 11%, to $3.3 billion- 3.2% capacity increase in 2018 from $3.0 billion in 2017 for largely the same reasons as discussed above.ALBDs
These increases were partially offset by:
•$30 million - lower fuel prices
•$11 million - lower fuel consumption per ALBD
Liquidity, Financial Condition and Capital Resources
Our primary financial goals areDue to profitably growthe spread of COVID-19 and the effects of growing port restrictions around the world, we previously announced a voluntary pause of our global fleet cruise business and increase our returnoperations. Significant events affecting travel, including COVID-19, typically have an impact on invested capital (“ROIC”), reaching double-digit returns, while maintaining a strong balance sheet and strong investment grade credit ratings. We define ROIC asbooking patterns, with the twelve month adjusted earnings before interest dividedfull extent of the impact generally determined by the monthly averagelength of debt plus equity minus construction-in-progress. Our ability to generate significant operating cash flow allows us to internally fundtime the event influences travel decisions. We believe the ongoing effects of COVID-19 on our capital investments. We are committed to
returning free cash flow to our shareholders in the form of dividends and/or share repurchases. As weoperations and global bookings have had, and will continue to profitably growhave a material negative impact on our cruise business,financial results and liquidity, and such negative impact may continue well beyond the containment of such outbreak.
As of February 29, 2020, we plan to increase our debt level in a manner consistent with maintaining our strong credit metrics. This will allow us to return both free cash flow and incremental debt proceeds to our shareholders in the formhad $3.0 billion of dividends and/or share repurchases. Other objectivesimmediate liquidity, which consisted of our capital structure policy are to maintain a sufficient level of liquidity with our available cash and cash equivalents and available borrowings under our Existing Multicurrency Facility. In addition, we had $2.8 billion from four committed financingsexport credit facilities that are available to fund the originally planned ship deliveries for immediatethe remainder of this year and future$5.9 billion from committed export credit facilities that are available to fund ship deliveries originally planned in 2021 and beyond. On March 13, 2020, we fully drew down our $3.0 billion Existing Multicurrency Facility, which amounts are currently due in September 2020. We borrowed under the Existing Multicurrency Facility in order to increase our cash position and preserve financial flexibility in light of the impact of the COVID-19 outbreak on our results of operations and liquidity.
We cannot assure you that our assumptions used to estimate our liquidity needs,requirements will be correct because we have never previously experienced a complete cessation of our cruising operations, and as a reasonable debt maturity profile.consequence, our ability to be predictive is uncertain. In addition, the magnitude, duration and speed of the global pandemic is uncertain. As a consequence, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with certainty, but we expect a net loss on both a U.S. GAAP and adjusted basis for the fiscal year ending November 30, 2020.
We are taking further actions to improve our liquidity, including capital expenditure and operating expense reductions, suspending dividend payments on, and the repurchase of, the common stock of Carnival Corporation and the ordinary shares of Carnival plc and pursuing additional financing. Based on our historical results, projectionsthese actions and financial condition,assumptions regarding the impact of COVID-19, we believehave concluded that our future operating cash flows and liquiditywe will be able to generate sufficient liquidity to fundsatisfy our obligations and remain in compliance with our existing debt covenants for the next twelve months prior to giving effect to any additional financing that may occur.
At February 29, 2020, we were in compliance with all of our expected capital projects including shipbuilding commitments, ship improvements,debt covenants. After considering the effect of COVID-19 on our consolidated EBITDA, the actions we have taken and the other options available to us, we expect to remain in compliance with our current minimum debt service requirements, working capital needscoverage ratio in certain of our debt instruments that requires a minimum of 3:1 ratio of EBITDA to Consolidated Net Interest Charges. If we expected to be out of compliance, we would seek waivers from the lenders prior to any covenant violation. Any covenant waiver may lead to increased costs, increased interest rates, additional restrictive covenants and other firm commitments overavailable lender protections that would be applicable. There can be no assurance that we would be able to obtain waivers in a timely manner, or on acceptable terms at all. If we were not able to obtain waivers or repay the next several years. We believe thatdebt facilities, this would lead to an event of default and potential acceleration of amounts due under all of our abilityoutstanding debt and derivative contract payables. As a result, the failure to generate significant operating cash flowsobtain waivers would have a material adverse effect on us. Refer to "Risk Factors - As a result of the COVID-19 outbreak, we have paused our global fleet cruise operations, and if we unable to re-commence normal operations in the near-term, we may be out compliance with a maintenance covenant in certain of our strong balance sheet, as evidenceddebt facilities.”
In March and April 2020, Moody’s and S&P Global downgraded our long-term issuer and senior unsecured debt ratings. In addition, our long-term ratings were placed on review for further downgrade by our investment gradeboth rating agencies. Our short-term commercial paper credit ratings provide uswere downgraded and also placed on review for further downgrade.
On April 1, 2020, we announced the pricing terms of offerings of $4.0 billion of the Secured Notes, $1.75 billion of Convertible Notes and a public offering of $500 million of common stock in the Public Equity Offering. In connection with the ability,Convertible Notes offering, we granted the initial purchasers of the Convertible Notes an option to purchase on or before April 18, 2020, up to an additional $262.5 million aggregate principal amount of Convertible Notes. In connection with the Public Equity Offering, we granted the underwriters an option to purchase up to 9,375,000 of additional shares of common stock, which option must be exercised on or before May 1, 2020.
The Secured Notes will pay interest semi-annually on April 1 and October 1 of each year, beginning on October 1, 2020, at a rate of 11.5% per year. The Secured Notes will mature on April 1, 2023. The Convertible Notes will pay interest semi-annually on April 1 and October 1 of each year, beginning on October 1, 2020, at a rate of 5.75% per year. The Convertible Notes will mature on April 1, 2023, unless earlier converted, redeemed or repurchased. The initial conversion rate per $1,000 principal
amount of Convertible Notes is equivalent to 100 shares of common stock of the Corporation, which is equivalent to a conversion price of approximately $10 per share, subject to adjustment in most financial credit market environments,certain circumstances.
The Public Equity Offering consists of 62,500,000 shares of common stock, par value $0.01 per share, of Carnival Corporation, at a price of $8 per share.
The Public Equity Offering, the Convertible Notes offering and the Secured Notes offering are expected to obtain debt financing.be completed
in early April, subject to customary closing conditions. The net proceeds from the offering of Secured Notes will be deposited
in to a segregated escrow account, pending the releases in accordance with certain collateral perfection thresholds. None of the closings of the Public Equity Offering and the offerings of the Secured Notes or the Convertible Notes is conditioned upon the closing of any of the other offerings or vice versa.
We had a working capital deficit of $7.2$7.8 billion as of February 28, 2018 and29, 2020 compared to a working capital deficit of $7.1 billion as of November 30, 2017.2019. The increase in working capital deficit was caused by an increase in short-term debt and an increase in the current portion of long-term debt partially offset by an increase in cash and cash equivalents. We operate with a substantial working capital deficit. This deficit is mainly attributable to the fact that, under our business model, substantially all of our passenger ticket receipts are collected in advance of the applicable sailing date. These advance passenger receipts remain a current liability until the sailing date. The cash generated from these advance receipts is used interchangeably with cash on hand from other sources, such as our borrowings and other cash from operations. The cash received as advanced receipts can be used to fund operating expenses, pay down our debt, invest in long termmake long-term investments or any other use of cash. Included within our working capital deficit are $4.3 billion and $4.0$4.7 billion of customer deposits as of February 28, 201829, 2020 and November 30, 2017, respectively.2019. In addition, we have a relatively low-level of accounts receivable and limited investment in inventories. We generate substantial cash flows from operations and our business model has historically allowed us to maintain this working capital deficit and still meet our operating, investing and financing needs. We expect that we will continue to have working capital deficits in the future.
Sources and Uses of Cash
Operating Activities
Our business provided $1.1 billion$916 million of net cash from operations during the three months ended February 28, 2018, an increase29, 2020, a decrease of $132$199 million, or 14%18%, compared to $0.9$1.1 billion for the same period in 2017. This increase was caused by an increase in our revenues less expenses settled in cash and an increase in customer deposits.2019.
Investing Activities
During the three months ended February 28, 2018,29, 2020, net cash used in investing activities was $591 million.$1.2 billion. This was caused by:substantially due to the following:
•Capital expenditures of $97$861 million for our ongoing new shipbuilding program
•Capital expenditures of $477$399 million for ship improvements and replacements, information technology and buildings and improvements
Payments•Proceeds from sales of $21ships of $226 million for fuel derivative settlements
•Purchase of minority interest of $83 million
During the three months ended February 28, 2017,2019, net cash used in investing activities was $474 million.$2.1 billion. This was driven by:caused by the following:
•Capital expenditures of $36 million$1.7 billion for our ongoing new shipbuilding program
•Capital expenditures of $376$428 million for ship improvements and replacements, information technology and buildings and improvements
Payments of $52 million for fuel derivative settlements
Financing Activities
During the three months ended February 28, 2018,29, 2020, net cash used inprovided by financing activities of $428 million$1.1 billion was substantially due tocaused by the following:
•Net proceeds offrom short-term borrowings of $611$779 million in connection with our availability of, and needs for, cash at various times throughout the period
•Repayments of $963$132 million of long-term debt
•Issuances of $469$823 million of long-term debt under a term loan
•Payments of cash dividends of $323$344 million
•Purchases of $218$12 million of Carnival plc ordinary shares in open market transactions under our Repurchase Program
During the three months ended February 28, 2019, net cash provided by financing activities of $612 million was caused by the following:
•Net repayments of short-term borrowings of $81 million in connection with our availability of, and needs for, cash at various times throughout the period
•Repayments of $95 million of long-term debt
•Issuances of $1.4 billion of long-term debt
•Payments of cash dividends of $348 million
•Purchases of $274 million of Carnival Corporation common stock and Carnival plc ordinary shares in open market transactions under our Repurchase Program
Capital Expenditure and Capacity Forecast
During the three months ended February 28, 2017, net cash used in financing activities of $615 million was substantially due to the following:
Net repayments of short-term borrowings of $289 million in connection with our availability of, and needs for, cash at various times throughout the period
Payments of cash dividends of $254 million
Purchases of $69 million of Carnival plc ordinary shares in open market transactions under our Repurchase Program
Future Commitments and Funding Sources
Our total annual capital expenditure forecast consists of contracted new ship growth capital, estimated payments for planned new ship growth capital and capital improvements.
| | | | | | | | | | | | | | | | | | | | |
(in billions) | | 2020 | | 2021 | | 2022 |
Annual capital expenditure forecast (a) | | | $ | 7.0 | | | $ | 5.8 | | | $ | 5.2 | |
(a)As of February 29, 2020.The annual capital expenditure forecast does not reflect any changes as a result of capital expenditures consist of ships under contract for constructionreductions discussed in Note 1 - “General - Liquidity and estimated improvements to existing ships and shoreside assets which are currently expected to be:Management's Plans.”
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| | | | | | | | | | | | | | | | | | | | | | | | |
(in billions) | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Total annual capital expenditures | | $ | 4.7 |
| | $ | 5.3 |
| | $ | 5.5 |
| | $ | 5.1 |
| | $ | 4.3 |
| | $ | 2.5 |
|
The year-over-year percentage increases in ourOur annual capacity are expected to result primarily fromforecast consists of contracted new ships entering service and are currently expected to be:
|
| | | | | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Annual capacity increase (a) | | 2.0 | % | | 5.5 | % | | 7.4 | % | | 7.6 | % | | 5.3 | % | | 3.9 | % |
(a) These percentage increases include only contracted ship orders andannounced dispositions.
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | 2022 |
Annual capacity increase (a) | | | 4.3 | % | | 7.3 | % | | 5.1 | % |
At(a)As of February 28, 2018,29, 2020.The capacity forecast does not reflect any changes in capacity resulting from our voluntary pause in operations.
Funding Sources
As of February 29, 2020, we had $3.0 billion of immediate liquidity, of $14.4 billion. Our liquiditywhich consisted of $157 million ofavailable cash and cash equivalents which excludes $296 million of cash used for current operations, $2.1 billionand available for borrowingborrowings under our revolvingExisting Multicurrency Facility, which is scheduled to mature in 2024. In addition, we had $2.8 billion from four committed export credit facilities netthat are available to fund the originally planned ship deliveries for the remainder of our outstanding commercial paper borrowings,this year and $12.1$5.9 billion under ourfrom committed future financings, which are comprised of ship export credit facilities.facilities that are available to fund ship deliveries originally planned in 2021 and beyond. These commitments are from numerous large and well-established banks and export credit agencies, which we believe will honor their contractual agreements with us.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in billions) | | 2020 | | 2021 | | 2022 | | 2023 |
Availability of committed future financing at February 29, 2020 | | | $ | 2.8 | | | $ | 2.7 | | | $ | 2.3 | | | $ | 0.9 | |
|
| | | | | | | | | | | | | | | | | | | | |
(in billions) | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
Availability of committed future financing at February 28, 2018 | | $ | 2.2 |
| | $ | 2.8 |
| | $ | 3.1 |
| | $ | 3.1 |
| | $ | 1.0 |
|
At February 28, 2018, all of our revolving credit facilities are scheduled to mature in 2021, except for $300 million that matures in 2020.
Substantially all of our debt agreements contain financial covenants as described in Note 5 - “Unsecured Debt” in the annual consolidated financial statements, which are included within our Form 10-K. At February 28, 2018,29, 2020, we were in compliance with our debt covenants. In addition, based on, among other things, our forecasted operating results, financial condition and cash flows, we expect to be in compliance with our debt covenants for the foreseeable future. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interests, certain derivative instruments and variable interest entities that either have, or are reasonably likely to have, a current or future material effect on our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of our hedging strategies and market risks, see the discussion below and Note 410 - “Fair Value Measurements, Derivative Instruments and Hedging Activities”Activities and Financial Risks” in our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations within our Form 10-K.
Fuel Price Risks
As of February 29, 2020, based on a 10% change in each of the fuel prices versus the spot price we estimate that our adjusted earnings per share would change by the following:
Heavy Fuel Oil (“HFO”) impact:
•$0.04 per share for the remaining three quarters of 2020
•$0.01 per share for the second quarter of 2020
Marine Gasoil (“MGO”) impact:
•$0.06 per share for the remaining three quarters of 2020
•$0.03 per share for the second quarter of 2020
Operational Currency Risks
Our operations primarily utilize the U.S. dollar, Australian dollar, euro or sterling as their functional currencies. Our operations also have revenue and expenses denominated in non-functional currencies. Movements in foreign currency exchange rates will affect our financial statements.
BasedAs of February 29, 2020, based on a 10% change in all currency exchange rates, that were used in our March 22, 2018 guidance, we estimate that our adjusted diluted earnings per share guidance would change by the following:
•$0.320.02 per share for the remaining three quarters of 20182020
•$0.06(0.07) per share for the second quarter of 20182020
Interest Rate Risks
The composition of our debt, including the effect of foreign currency swaps and interest rate swaps, was as follows:
|
| | | | |
| February 28, 201829, 2020 |
Fixed rate | 21 | % |
EUR fixed rate | 3837 | % |
Floating rate | 1110 | % |
EUR floating rate | 2025 | % |
GBP floating rate | 107 | % |
Fuel Price Risks
Based on a 10% change in fuel prices versus the current spot price that was used to calculate fuel expense in our March 22, 2018 guidance, we estimate that our adjusted diluted earnings per share guidance would change by the following:
$0.15 per share for the remaining three quarters of 2018
$0.05 per share for the second quarter of 2018
Based on a 10% change in Brent prices versus the current spot price that was used to calculate realized gains (losses) on fuel derivatives in our March 22, 2018 guidance, we estimate that our adjusted diluted earnings per share guidance would change by the following:
$0.04 per share for the remaining three quarters of 2018
$0.01 per share for the second quarter of 2018
Item 4. Controls and Procedures.
A. Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Our President and Chief Executive Officer and our Chief Financial Officer and Chief Accounting Officer have evaluated our disclosure controls and procedures and have concluded, as of February 28, 2018,29, 2020, that they are effective at a reasonable level of assurance, as described above.
B. Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended February 28, 201829, 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As previously disclosed, on October 23, 2019, a complaint was filed by a purported shareholder of Carnival plc in the New York Supreme Court, New York County, purporting to allege derivative claims on Carnival plc’s behalf for breach of fiduciary duty and corporate waste against the members of the Carnival plc Board of Directors (the “Board”). On February 10, 2020, Carnival plc and the Board filed a joint motion to dismiss this complaint.
As previously disclosed, on May 19, 2017, Holland America Line and Princess Cruises notified the National Oceanic and Atmospheric Administration (“NOAA”) regarding discharges made by certain vessels in the recently expanded area of the National Marine Sanctuary in the Farallones Islands. NOAA continues to conductIsland. On February 7, 2020, Carnival Corporation received an investigation.assessment for a civil penalty of $1.4 million for discharges. We believe the ultimate outcome of any penalty will not have a material impact on our consolidated financial statements.
In June and August of 2018, Holland America Line received four Notices of Violation from the Alaska Department of Environmental Conservation, alleging that four ships violated the Alaska state visible emissions standards while docked in Skagway, Haines and Ketchikan. On October 17, 2018, Holland America Line received an offer to settle the Notices of Violation and on February 13, 2020 it received a revised offer to settle. We deny the allegations under all four Notices of Violation and we believe we have meritorious defenses to the claims, and that any liability which may arise as a result of this action will not have a material impact on our consolidated financial statements.
Refer to our consolidated financial statements for further information on Legal Proceedings.
Item 1A. Risk Factors.
•COVID-19 has had, and is expected to continue to have, a significant impact on our financial condition and operations, which impacts our ability to obtain acceptable financing to fund resulting reductions in cash from operations. The current, and uncertain future, impact of the COVID-19 outbreak, including its effect on the ability or desire of people to travel (including on cruises), is expected to continue to impact our results, operations, outlooks, plans, goals, growth, reputation, cash flows, liquidity, and stock price.
The spread of COVID-19 and the recent developments surrounding the global pandemic are having material negative impacts on all aspects of our business. We have implemented a voluntary pause of our global fleet cruise operations across all brands and such pause may be prolonged. As of March 31, 2020, substantially all our ships are at port and all are expected to dock by the end of April. In addition, we have been, and will continue to be further, negatively impacted by related developments, including heightened governmental regulations and travel advisories, recommendations by the U.S. Department of State and the Centers for Disease Control and Prevention, and travel bans and restrictions, each of which has impacted, and is expected to continue to significantly impact, global guest sourcing and our access to various ports of call.
To date we have incurred, and expect to continue to incur, significant costs as we bring currently ongoing cruises to a conclusion, provide air transportation to return our passengers to their home destinations and assist some of our crew that is, or will be upon docking, unable to return home, with food and housing. We will continue to incur COVID-19 related costs as we sanitize our ships and implement additional hygiene-related protocol to our ships. In addition, the industry may be subject to enhanced health and hygiene requirements in attempts to counteract future outbreaks, which requirements may be costly and take a significant amount of time to implement across our global fleet cruise operations.
Due to the outbreak of COVID-19 on some of our ships, and the resulting illness and loss of life in certain instances, we have been the subject of negative publicity which could have a long term impact on the appeal of our brands, which would diminish demand for vacations on our vessels. We cannot predict how long the negative impact of recent media attention on our brands will last, or the level of investment that will be required to address the concerns of potential travelers through marketing and pricing actions.
We have received, and expect to continue to receive, lawsuits from passengers aboard the Grand Princess voyage in February 2020. We may receive additional lawsuits stemming from COVID-19. We cannot predict the quantum or outcome of any such proceedings and the impact that they will have on our financial results, but any such impact may be material. We also remain subject to extensive, complex, and closely monitored obligations under the court-ordered environmental compliance plan supervised by the U.S. District Court for the Southern District of Florida, as a result of the previously disclosed settlement agreement relating to the violation of probation conditions for a plea agreement entered into by Princess Cruises and the U.S.
Department of Justice in 2016. We remain fully committed to satisfying those obligations. However, COVID-19 presents enormous challenges for the Company, which could result in material adverse impacts.
We have insurance coverage for certain liabilities, costs and expenses related to COVID-19 through our participation in Protection and Indemnity (“P&I”) clubs, including coverage for direct and incremental costs including, but not limited to, certain quarantine expenses and for certain liabilities to passengers and crew. P&I clubs are mutual indemnity associations owned by members. There is a $10 million deductible per occurrence (meaning per outbreak on a particular ship). We cannot assure you that we will receive insurance proceeds that will compensate us fully for our liabilities, costs and expenses under these policies. We have no insurance coverage for loss of revenues or earnings from our ships or other operations.
We have a total of 16 cruise ships scheduled to be delivered through 2025, including four during the remainder of fiscal 2020. We believe the effects of COVID-19 on the shipyards where our ships are under construction will result in a delay in ship deliveries, which we cannot predict and may be prolonged.
We cannot predict when any of our ships will begin to sail again and ports will reopen to our ships. Moreover, even once travel advisories and restrictions are lifted, demand for cruises may remain weak for a significant length of time and we cannot predict if and when each brand will return to pre-outbreak demand or fare pricing. In particular, our bookings may be negatively impacted by the adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth resulting from the impact of COVID-19. In addition, we cannot predict the impact COVID-19 will have on our partners, such as travel agencies, suppliers and other vendors. We may be adversely impacted as a result of the adverse impact our partners suffer.
We have never previously experienced a complete cessation of our cruising operations, and as a consequence, our ability to be predictive regarding the impact of such a cessation on our brands and future prospects is uncertain. In particular, we cannot predict the impact on our financial performance and our cash flows required for cash refunds of deposits as a result of the pause in our global fleet cruise operations, which may be prolonged, and the public’s concern regarding the health and safety of travel, especially by cruise ship, and related decreases in demand for travel and cruising. Moreover, our ability to attract and retain guests and crew depends, in part, upon the perception and reputation of our company and our brands and the public’s concerns regarding the health and safety of travel generally, as well as regarding the cruising industry and our ships specifically. As a result, we expect a net loss on both a U.S. GAAP and adjusted basis for the fiscal year ending November 30, 2020, and our ability to forecast our cash inflows and additional capital needs is hampered.
As a result of all of the foregoing, we may be required to raise additional capital and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings. As a result of COVID-19, in March and April 2020, Moody's and S&P Global downgraded our long-term issuer and senior unsecured debt ratings. In addition, our long-term ratings were placed on review for further downgrade by both rating agencies. Our short-term commercial paper credit ratings were downgraded and also placed on review for further downgrade. If our credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to our rating levels, our industry, or us, our access to capital and the cost of any debt financing will be further negatively impacted. In addition, the terms of future debt agreements could include more restrictive covenants, or require incremental collateral, which may further restrict our business operations or be unavailable due to our covenant restrictions then in effect. There is no guarantee that debt financings will be available in the future to fund our obligations, or that they will be available on terms consistent with our expectations. Additionally, the impact of COVID-19 on the financial markets is expected to adversely impact our ability to raise funds through equity financings.
In addition, the COVID-19 outbreak has significantly increased economic and demand uncertainty. The current outbreak and continued spread of COVID-19 could cause a global recession, which would have a further adverse impact on our financial condition and operations. In past recessions, demand for our cruise vacations has been significantly negatively impacted which has resulted in lower occupancy rates and adverse pricing, with a corresponding increase in the use of credits and other means to attract travelers. Current economic forecasts for significant increases in unemployment in the U.S. and other regions due to the adoption of social distancing and other policies to slow the spread of the virus is likely to have a negative impact on booking demand for our global fleet cruise operations once our operations resume, and these impacts could exist for an extensive period of time.
The extent of the effects of the outbreak on our business and the cruising industry at large is highly uncertain and will ultimately depend on future developments, including, but not limited to, the duration and severity of the outbreak, the length of time it takes for demand and pricing to return and normal economic and operating conditions to resume. To the extent COVID-19 adversely affects our business, operations, financial condition and operating results, it may also have the effect of heightening many of the other risks described in Item 1A. “Risk Factors” included in our Form 10-K.
•Any potential government disaster relief assistance could impose significant limitations on our corporate activities and may not be on terms favorable to us.
If any government agrees to provide disaster relief assistance, it may impose certain requirements on the recipients of the aid including restrictions on executive officer compensation, share buybacks, dividends, prepayment of debt and other similar restrictions until the aid is repaid or redeemed in full. We cannot assure you that any such government disaster relief assistance, if passed, will not significantly limit our corporate activities or be on terms that are favorable to us or at all. Such restrictions and terms could adversely impact our business and operations.
•Any failure to protect our intellectual property rights could impair our brands, negatively impact our business or both.
Our success and ability to compete depend in part on protecting our brands and other intellectual property, including our ability to use trademarks in order to capitalize on name-recognition and increase awareness of our brands. We rely on a combination of trademark, patent, copyright, trade secrets and other rights, as well as confidentiality procedures and contractual provisions to protect our intellectual property and proprietary technology. The steps we take to protect our intellectual property rights, however, may not be adequate. For example, not all of the trademarks that are used in our business have been registered in all countries in which we do business or may do business in the future, and some of the trademarks may never be registered in all of these countries. Rights in trademarks are generally national in character, and are obtained on a country-by-country basis by the first person to obtain protection through use or registration in that country in connection with specified products and services. Some countries’ laws do not protect unregistered trademarks at all, or make them more difficult to enforce, and third parties may have filed for trademarks that are the same or similar to our brands in countries where we have not registered our brands as trademarks. Accordingly, we may not be able to adequately protect our brands everywhere we do business and use of our brands may result in liability for trademark infringement, trademark dilution or unfair competition. In addition, the laws of some foreign countries do not protect intellectual property to the same extent as the laws of the United States, and we may not receive registrations for all of our pending trademark, patent or copyright applications, and existing or future registrations may not provide sufficient protection or competitive advantages for our products and services. In the event that we are not able to obtain grants or registrations in respect of such intellectual property applications, we may not be able to obtain statutory protections available under the relevant intellectual property laws, which could limit our ability to protect our intellectual property and impede our marketing efforts. In addition, we cannot be certain that our products and technology do not and will not infringe the intellectual property rights of others, and third parties may seek to challenge, invalidate or circumvent our trademark, patent, copyright, trade secrets and other rights or applications for any of the foregoing. Furthermore, it is difficult for us to monitor unauthorized uses of our intellectual property, and if we become aware of a third party’s unauthorized use or misappropriation of our intellectual property, it may not be practicable, effective or cost-efficient for us to enforce our intellectual property and contractual rights fully. In order to protect or enforce our intellectual property rights, we may be required to spend significant resources. Regardless of the merits of any such claim as a plaintiff or defendant, litigation could be costly, time consuming, distracting and we may not prevail, which could result in the impairment or loss of intellectual property rights. To the extent claims against us are successful, we may have to pay substantial monetary damages (including treble damages), or discontinue or modify certain products or services that are found to be in violation of another party’s rights. We may have to seek a license to continue offering our products or technology, which may not be available on reasonable terms, or at all. Our failure to secure, protect and enforce our intellectual property rights could materially adversely affect our business.
•We are subject to casualty risks that could materially adversely affect our business.
We use a combination of insurance and self-insurance to cover a number of risks associated with owning and operating our vessels and other non-ship related risks. There are, however, certain losses, including losses resulting from terrorist acts and certain environmental disasters, that may be either uninsurable or not economically insurable, in whole or in part. As a result, we cannot assure you that the insurance proceeds will compensate us fully for our losses. If we suffer a total or partial loss, we cannot assure you that any insurance proceeds received by us will be sufficient to satisfy all of our obligations. Moreover, we do not carry coverage related to loss of earnings or revenues from our ships or other operations. In the event of a total or partial loss to any of our vessels, such vessels and certain items of equipment inventory may not be easily replaced. Accordingly, even though there may be insurance coverage, the extended period needed to replace such vessels or items could cause significant losses.
•Our substantial debt could adversely affect our financial health and operating flexibility.
We have a substantial amount of debt and significant debt service obligations. As of February 29, 2020, on an as-adjusted basis after giving effect to the draw on our Existing Multicurrency Facility and the Secured Notes and Convertible Notes offerings, we would have had total gross debt of $21,841 million.
Our substantial debt could:
◦require us to dedicate a large portion of our cash flow from operations to service debt and fund repayments
on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures
and other general corporate purposes;
◦increase our vulnerability to adverse general economic or industry conditions;
◦limit our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate;
◦place us at a competitive disadvantage compared to our competitors that have less debt;
◦make us more vulnerable to downturns in our business, the economy or the industry in which we operate;
◦limit our ability to raise additional debt or equity capital in the future to satisfy our requirements relating to
working capital, capital expenditures, development projects, strategic initiatives or other purposes;
◦restrict us from making strategic acquisitions, introducing new technologies or exploiting business
opportunities;
◦make it difficult for us to satisfy our obligations with respect to our debt; and
◦expose us to the risk of increased interest rates as certain of our borrowings are (and may be in the future) at
a variable rate of interest.
•Despite our leverage, we may incur more debt, which could adversely affect our business and prevent us from
fulfilling our obligations with respect to our debt.
We may be able to incur substantial additional debt in the future. Although the instruments governing our existing indebtedness contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of debt that could be incurred in compliance with these restrictions could be substantial and a portion of such debt could be secured. If new debt is added to our existing debt levels, our business could be adversely affected which may prevent us from fulfilling our obligations with respect to our debt.
•We are subject to restrictive debt covenants that may limit our ability to finance future operations and capital needs and to pursue business opportunities and activities. In addition, if we fail to comply with any of these restrictions, it could have a material adverse effect on the Company.
Our Existing Multicurrency Facility, the indenture governing the Secured Notes and certain of our other debt instruments limit our flexibility in operating our business. For example, the indenture governing the Secured Notes will restrict or limit the ability of Carnival Corporation, Carnival plc and certain of their respective subsidiaries to, among other things:
◦incur or guarantee additional indebtedness;
◦pay dividends or distributions on, or redeem or repurchase capital stock and make other restricted payments;
◦make investments;
◦consummate certain asset sales;
◦engage in certain transactions with affiliates;
◦grant or assume certain liens; and
◦consolidate, merge or transfer all or substantially all of our assets.
All of these limitations will be subject to significant exceptions and qualifications. Despite these exceptions and qualifications, we cannot assure you that the operating and financial restrictions and covenants in our Existing Multicurrency Facility, the indenture governing the Secured Notes and certain of our other debt instruments will not adversely affect our ability to finance our future operations or capital needs or engage in other business activities that may be in our interest. Any future indebtedness may include similar or other restrictive terms. In addition, our ability to comply with these covenants, including financial covenants relating to our consolidated net interest, and restrictions may be affected by events beyond our control. These include prevailing economic, financial and industry conditions. If we breach any of these covenants or restrictions, we could be in default under the terms of our Existing Multicurrency Facility and certain of our other debt facilities and the relevant lenders could elect to declare the debt, together with accrued and unpaid interest and other fees, if any, immediately due and payable and proceed against any collateral securing that debt. Such a breach could also result in an event of default under the indenture governing the Secured Notes. If the debt under the Existing Multicurrency Facility, the guarantees or certain of our other debt instruments that we enter into were to be accelerated, our assets may be insufficient to repay in full our debt. Borrowings under other debt instruments that contain cross-default provisions also may be accelerated or become payable on demand. In these circumstances, our assets may not be sufficient to repay in full our indebtedness then outstanding.
•We will require a significant amount of cash to service our debt and sustain our operations. Our ability to generate cash depends on many factors beyond our control, and we may not be able to generate cash required to service our debt.
Our ability to meet our other debt service obligations or refinance our debt depends on our future operating and financial performance and ability to generate cash. This will be affected by our ability to successfully implement our business strategy, as well as general economic, financial, competitive, regulatory and other factors beyond our control, such as the disruption caused by the COVID-19 pandemic. If we cannot generate sufficient cash to meet our debt service obligations or fund our other business needs, we may, among other things, need to refinance all or a portion of our debt, obtain additional financing, delay planned capital expenditures or sell assets. We cannot assure you that we will be able to generate sufficient cash through any of
the foregoing. If we are not able to refinance any of our debt, obtain additional financing or sell assets on commercially reasonable terms or at all, we may not be able to satisfy our obligations with respect to our debt. See “Recent Developments”, “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources” in our Annual Report and “Update on Liquidity and Management’s Plans” in our current report on Form 8-K as filed on March 31, 2020.
•Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under the Existing Multicurrency Facility and certain of our other facilities are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on certain of our variable rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. In addition, in July 2017, the U.K. Financial Conduct Authority announced that it intends to stop collecting LIBOR rates from banks after 2021. The announcement indicates that LIBOR will not continue to exist on the current basis. We are unable to predict the effect of any changes to LIBOR, the establishment and success of any alternative reference rates, or any other reforms to LIBOR or any replacement of LIBOR that may be enacted in the United Kingdom or elsewhere. Such changes, reforms or replacements relating to LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives or other financial instruments or extensions of credit held by us. As such, LIBOR-related changes could affect our overall results of operations and financial condition.
We have entered into, and in the future we will continue to enter into, interest rate swaps that involve the exchange of floating for fixed-rate interest payments to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any such swaps may not fully mitigate our interest rate risk, may prove disadvantageous, or may create additional risks. Each 0.125% change in interest rates would result in approximately $9 million change in annual interest expense on our variable interest debt instruments that were outstanding as of November 30, 2019, including the impact of our interest rate swaps, and the Existing Multicurrency Facility.
•As a result of the COVID-19 outbreak, we have paused our global fleet cruise operations, and if we are unable to re-commence normal operations in the near-term, we may be out of compliance with a maintenance covenant in certain of our debt facilities
Under the terms of certain of our debt facilities with an aggregate outstanding principal amount of $8.4 billion of indebtedness as of February 29, 2020, we are required to maintain an interest coverage ratio (EBITDA to consolidated net interest charges for the most recently ended four fiscal quarters) of not less than 3.0 to 1.0 at the end of each fiscal quarter. As a result of the COVID-19 outbreak, we have paused our global fleet cruise operations and if we are unable to re-commence normal operations in the near-term, we may be out of compliance with our interest coverage ratio covenant as of the end of our third fiscal quarter or in future periods. If we expected to be out of compliance, we expect to seek waivers from the lenders under these numerous facilities prior to any covenant violation.
Any covenant waiver may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections that would be applicable to us under these debt facilities, and such increased costs, restrictions and modifications may vary among debt facilities. Our ability to provide additional lender protections under these facilities, including the granting of security interests in collateral, will be limited by the restrictions in our indebtedness. There can be no assurance that we would be able to obtain waivers in a timely manner, on acceptable terms or at all. If we were not able to obtain a covenant waiver under any one or more of these debt facilities, we would be in default of such agreements, which could result in cross defaults to our other debt agreements. As a consequence, we would need to refinance or repay the applicable debt facility or facilities, and would be required to raise additional debt or equity capital, or divest assets, to refinance or repay such facility or facilities. If we were to be unable to obtain a covenant waiver under any one or more of these debt
facilities, there can be no assurance that we would be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay such facility or facilities.
With respect to each of these debt facilities, if we were not to obtain a waiver or refinance or repay such debt facilities, it would lead to an event of default under such facilities, which could lead to an acceleration of the indebtedness under such debt facilities. In turn, this would lead to an event of default and potential acceleration of amounts due under all of our outstanding debt and derivative contract payables. As a result, the failure to obtain the covenant waivers described above would have a material adverse effect.
Additional risk factors that affect our business and financial results are discussed in “Item 1A. Risk Factors,” included in the Form 10-K, and there has been no material change to these risk factors since the Form 10-K filing.10-K. We wish to caution the reader that the risk factors discussed in “Item 1A. Risk Factors,” included in the Form 10-K, and those described elsewhere in this report or other Securities and Exchange Commission filings, could cause future results to differ materially from those stated in any forward-looking statements. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
A. Repurchase Program
Under a share repurchase program effective 2004, we are authorized to repurchase Carnival Corporation common stock and Carnival plc ordinary shares (the “Repurchase Program”). On April 6, 2017,Effective August 2018, the Boards of Directorscompany approved a modification of the general authorization under the Repurchase Program, which replenished the remaining authorized repurchases at the time of the approval to $1.0 billion. The Repurchase Program does not have an expiration date and may be discontinued by our Boards of Directors at any time. Subsequent to quarter end, to enhance our liquidity as well as comply with restrictions anticipated in future financing transactions, we have suspended share repurchases.
During the three months ended February 28, 2018, repurchases29, 2020, no shares of Carnival Corporation common stock were repurchased pursuant to the Repurchase Program were as follows:Program.
|
| | | | | | | | | | | |
Period | | Total Number of Shares of Carnival Corporation Common Stock Purchased (in millions) | | Average Price Paid per Share of Carnival Corporation Common Stock | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Repurchase Program (in millions) |
December 1, 2017 through December 31, 2017 | | 0.1 |
| | $ | 66.01 |
| | $ | 515 |
|
January 1, 2018 through January 31, 2018 | | 0.1 |
| | $ | 69.06 |
| | $ | 440 |
|
February 1, 2018 through February 28, 2018 | | — |
| | $ | 64.97 |
| | $ | 370 |
|
Total | | 0.2 |
| | $ | 67.53 |
| | |
During the three months ended February 28, 2018,29, 2020, repurchases of Carnival plc ordinary shares pursuant to the Repurchase Program were as follows:
|
| | | | | | | | | | | |
Period | | Total Number of Shares of Carnival plc Purchased (in millions) | | Average Price Paid per Share of Carnival plc | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Repurchase Program (in millions) |
December 1, 2017 through December 31, 2017 | | 1.0 |
| | $ | 65.44 |
| | $ | 515 |
|
January 1, 2018 through January 31, 2018 | | 1.0 |
| | $ | 68.23 |
| | $ | 440 |
|
February 1, 2018 through February 28, 2018 | | 1.0 |
| | $ | 68.15 |
| | $ | 370 |
|
Total | | 3.0 |
| | $ | 67.25 |
| | |
| | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares of Carnival plc Purchased (in millions) | | Average Price Paid per Share of Carnival plc | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Repurchase Program (in millions) |
December 1, 2019 through December 31, 2019 | | 0.2 | | | $ | 41.29 | | | $ | 122 | |
January 1, 2020 through January 31, 2020 | | — | | | $ | — | | | $ | 122 | |
February 1, 2020 through February 29, 2020 | | — | | | $ | — | | | $ | 122 | |
Total | | 0.2 | | | $ | 41.29 | | | |
No shares of Carnival Corporation common stock and Carnival plc ordinary shares were purchased outside of publicly announced plans or programs.
B. Stock Swap Programs
In addition to the Repurchase Program, we have programs that allow us to obtain an economic benefit when either Carnival Corporation common stock is trading at a premium to the price of Carnival plc ordinary shares or Carnival plc ordinary shares are trading at a premium to Carnival Corporation common stock (the “Stock Swap Programs”). For example:
In the event Carnival Corporation common stock trades at a premium to Carnival plc ordinary shares, we may elect to sell shares of Carnival Corporation common stock, at prevailing market prices in ordinary brokers’ transactions and repurchase an equivalent number of Carnival plc ordinary shares in the UK market.
In the event Carnival plc ordinary shares trade at a premium to Carnival Corporation common stock, we may elect to sell ordinary shares of Carnival plc, at prevailing market prices in ordinary brokers’ transactions and repurchase an equivalent number of shares of Carnival Corporation common stock in the U.S. market.
Any realized economic benefit under the Stock Swap Programs is used for general corporate purposes, which could include repurchasing additional stock under the Repurchase Program.
Under the Stock Swap Programs effective 2008, the Boards of Directors have made the following authorizations:
In January 2017, to sell up to 22.0 million shares of Carnival Corporation common stock in the U.S. market and repurchase up to 22.0 million of Carnival plc ordinary shares in the UK market.
In February 2016, to sell up to 26.9 million of existing Carnival plc ordinary shares in the UK market and repurchase up to 26.9 million shares of Carnival Corporation common stock in the U.S. market.
Any sales of Carnival Corporation shares and Carnival plc ordinary shares have been or will be registered under the Securities Act of 1933. During the three months ended February 28, 2018, no Carnival Corporation common stock or Carnival plc ordinary shares were sold or repurchased under the Stock Swap Programs.
C. Carnival plc Shareholder Approvals
Carnival plc ordinary share repurchases under both the Repurchase Program and the Stock Swap Programs require annual shareholder approval. The existing shareholder approval is limited to a maximum of 21.619.2 million ordinary shares and is valid until the earlier of the conclusion of the Carnival plc 20182020 annual general meeting or July 4, 2018.15, 2020. Subsequent to quarter end, to enhance our liquidity as well as comply with restrictions anticipated in future financing transactions, we have suspended share repurchases.
Item 6. Exhibits.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INDEX TO EXHIBITS | | | | | | | | | | |
| | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | Filed/ Furnished Herewith |
Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date | | |
| | | | | | | | | | |
Articles of incorporation and by-laws | | | | | | | | | | |
| | | | | | | | | | |
3.1 | | | | | 8-K | | 3.1 | | | 4/17/2003 | | |
3.2 | | | | | 8-K | | 3.1 | | | 4/20/2009 | | |
3.3 | | | | | 8-K | | 3.3 | | | 4/20/2009 | | |
| | | | | | | | | | |
Material Contracts | | | | | | | | | | |
| | | | | | | | | | |
10.1 | | | | | | | | | | X |
10.2 | | | | | | | | | | X |
10.3 | | | | | | | | | | X |
| | | | | | | | | | |
Rule 13a-14(a)/15d-14(a) certifications | | | | | | | | | | |
| | | | | | | | | | |
31.1 | | | | | | | | | | X |
31.2 | | | | | | | | | | X |
31.3 | | | | | | | | | | X |
31.4 | | | | | | | | | | X |
| | | | | | | | | | |
Section 1350 certifications | | | | | | | | | | |
| | | | | | | | | | |
32.1* | | | | | | | | | | X |
32.2* | | | | | | | | | | X |
32.3* | | | | | | | | | | X |
32.4* | | | | | | | | | | X |
| | | | | | | | | | |
|
| | | | | | | | | | |
INDEX TO EXHIBITS | | | | | | | | |
| | | | | | | | | | |
| | | | Incorporated by Reference | | Filed/ Furnished Herewith |
Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date | |
| | | | | | | | | | |
Articles of incorporation and by-laws | | | | | | | | |
| | | | | | | | | | |
3.1 | | | | 8-K | | 3.1 | | 4/17/2003 | | |
3.2 | | | | 8-K | | 3.1 | | 4/20/2009 | | |
3.3 | | | | 8-K | | 3.3 | | 4/20/2009 | | |
| | | | | | | | |
Material contracts | | | | | | | | |
10.1 | | | | | | | | | | X |
10.2 | | | | | | | | | | X |
10.3 | | | | | | | | | | X |
10.4 | | | | | | | | | | X |
| | | | | | | | | | |
Statement regarding computations of ratios | | | | | | | | |
| | | | | | | | | | |
12 | | | | | | | | | | X |
| | | | | | | | | | |
Rule 13a-14(a)/15d-14(a) certifications | | | | | | | | |
| | | | | | | | | | |
31.1 | | | | | | | | | | X |
31.2 | | | | | | | | | | X |
31.3 | | | | | | | | | | X |
31.4 | | | | | | | | | | X |
| | | | | | | | | | |
Section 1350 certifications | | | | | | | | |
| | | | | | | | | | |
32.1* | | | | | | | | | | X |
32.2* | | | | | | | | | | X |
32.3* | | | | | | | | | | X |
32.4* | | | | | | | | | | X |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INDEX TO EXHIBITS | | | | | | | | | | |
| | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | Filed/ Furnished
Herewith
|
Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date
| | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Interactive Data File | | | | | | | | | | |
| | | | | | | | | | |
101 | | | The consolidated financial statements from Carnival Corporation & plc’s joint Quarterly Report on Form 10-Q for the quarter ended February 28, 2018,29, 2020, as filed with the Securities and Exchange Commission on March 22, 2018,April 3, 2020, formatted in Inline XBRL, are as follows: | | | | | | | | |
| | (i) the Consolidated Statements of Income (Loss) for the three months ended February 29/28, 20182020 and 2017;2019; | | | | | | | | X |
| | (ii) the Consolidated Statements of Comprehensive Income (Loss) for the three months ended February 29/28, 20182020 and 2017;2019; | | | | | | | | X |
| | (iii) the Consolidated Balance Sheets at February 28, 201829, 2020 and November 30, 2017;2019; | | | | | | | | X |
| | (iv) the Consolidated Statements of Cash Flows for the three months ended February 29/28, 20182020 and 2017 and2019; | | | | | | | | X |
| | (v) the Consolidated Statements of Shareholders’ Equity for the three months ended February 29/28, 2020 and 2019; | | | | | | | | X |
| | (vi) the notes to the consolidated financial statements, tagged in summary and detail. | | | | | | | | X |
| | | | | | | | | | |
104 | | | The cover page from Carnival Corporation & plc’s joint Quarterly Report on Form 10-Q for the quarter ended February 29, 2020, as filed with the Securities and Exchange Commission on April 3, 2020, formatted in Inline XBRL (included as Exhibit 101) | | | | | | | | |
| | | | | |
| |
* | |
* | These items are furnished and not filed. |
** | Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | |
| CARNIVAL CORPORATION | | | CARNIVAL PLC |
| | | | |
By: | CARNIVAL CORPORATION | | | CARNIVAL PLC |
| | | | |
By: | /s/ Arnold W. Donald | | By: | /s/ Arnold W. Donald |
| Arnold W. Donald | | | Arnold W. Donald |
| President and Chief Executive Officer | | | President and Chief Executive Officer |
| | | | |
By: | /s/ David Bernstein | | By: | /s/ David Bernstein |
| David Bernstein | | | David Bernstein |
| Chief Financial Officer and Chief Accounting Officer | | | Chief Financial Officer and Chief Accounting Officer |
| | | | |
| Date: March 22, 2018April 3, 2020 | | | Date: March 22, 2018April 3, 2020 |
| | | | |